Generalized Invariant Preferences: Two-parameter Representations of Preferences
AbstractIn this paper, we generalize the model of Quiggin and Chambers (2004) to allow for ambiguity, and derive conditions, referred to as generalized invariance, under which a two argument representation of preferences may be obtained independent of the existence of a unique probability measure. The first of these two arguments inherits the properties of standard means, namely, that they are upper semi-continuous, translatable and positively linearly homogeneous. But instead of being additive, these generalized means are superadditive. Superadditivity allows for means that are computed (conservatively) with respect to a set of prior probability measures rather than a singleton probability measure. The second argument of the preference structure is a further generalization of the risk index derived in Quiggin and Chambers (2004). It is sublinear in deviations from the generalized mean discussed above.
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Bibliographic InfoPaper provided by Risk and Sustainable Management Group, University of Queensland in its series Risk & Uncertainty Working Papers with number WPR08_1.
Date of creation: Feb 2008
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Other versions of this item:
- Chambers, Robert G & Quiggin, John, 2008. "Generalized Invariant Preferences: Two-parameter Representations of Preferences," Risk and Sustainable Management Group Working Papers 151186, University of Queensland, School of Economics.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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