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Relative concave utility for risk and ambiguity


  • Baillon, Aurélien
  • Driesen, Bram
  • Wakker, Peter P.


This paper presents a general technique for comparing the concavity of different utility functions when probabilities need not be known. It generalizes: (a) Yaariʼs comparisons of risk aversion by not requiring identical beliefs; (b) Kreps and Porteusʼ information-timing preference by not requiring known probabilities; (c) Klibanoff, Marinacci, and Mukerjiʼs smooth ambiguity aversion by not using subjective probabilities (which are not directly observable) and by not committing to (violations of) dynamic decision principles; (d) comparative smooth ambiguity aversion by not requiring identical second-order subjective probabilities. Our technique completely isolates the empirical meaning of utility. It thus sheds new light on the descriptive appropriateness of utility to model risk and ambiguity attitudes.

Suggested Citation

  • Baillon, Aurélien & Driesen, Bram & Wakker, Peter P., 2012. "Relative concave utility for risk and ambiguity," Games and Economic Behavior, Elsevier, vol. 75(2), pages 481-489.
  • Handle: RePEc:eee:gamebe:v:75:y:2012:i:2:p:481-489
    DOI: 10.1016/j.geb.2012.01.006

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    References listed on IDEAS

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    Cited by:

    1. Berger, Loïc & Bleichrodt, Han & Eeckhoudt, Louis, 2013. "Treatment decisions under ambiguity," Journal of Health Economics, Elsevier, vol. 32(3), pages 559-569.
    2. Larry G. Epstein & Martin Schneider, 2010. "Ambiguity and Asset Markets," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 315-346, December.
    3. Mohammed Abdellaoui & Ahmed Driouchi & Olivier L’Haridon, 2011. "Risk aversion elicitation: reconciling tractability and bias minimization," Theory and Decision, Springer, vol. 71(1), pages 63-80, July.
    4. Craig Webb, 2010. "Agreeing to spin the subjective roulette wheel: Bargaining with subjective mixtures," The School of Economics Discussion Paper Series 1005, Economics, The University of Manchester.
    5. Jinrui Pan & Craig Webb & Horst Zank, 2013. "Discounting the Subjective Present and Future," The School of Economics Discussion Paper Series 1305, Economics, The University of Manchester.
    6. Xiangyu Qu, 2015. "A belief-based definition of ambiguity aversion," Theory and Decision, Springer, vol. 79(1), pages 15-30, July.
    7. Katarzyna Werner & Horst Zank, 2012. "Foundations for Prospect Theory Through Probability Midpoint Consistency," The School of Economics Discussion Paper Series 1210, Economics, The University of Manchester.
    8. Pan, Jinrui & Webb, Craig S. & Zank, Horst, 2015. "An extension of quasi-hyperbolic discounting to continuous time," Games and Economic Behavior, Elsevier, vol. 89(C), pages 43-55.
    9. Ulrich Schmidt & Horst Zank, 2012. "A genuine foundation for prospect theory," Journal of Risk and Uncertainty, Springer, vol. 45(2), pages 97-113, October.
    10. repec:kap:theord:v:83:y:2017:i:1:d:10.1007_s11238-016-9584-6 is not listed on IDEAS

    More about this item


    More risk averse; More ambiguity averse; Knightian uncertainty; Subjective probability; Nonexpected utility;

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty


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