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Relative concave utility for risk and ambiguity

Listed author(s):
  • 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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0899825612000097
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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 75 (2012)
Issue (Month): 2 ()
Pages: 481-489

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Handle: RePEc:eee:gamebe:v:75:y:2012:i:2:p:481-489
DOI: 10.1016/j.geb.2012.01.006
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  7. Alain Chateauneuf & Jean-Marc Tallon, 2000. "Diversification, Convex Preferences and Non-Empty Core," Econometric Society World Congress 2000 Contributed Papers 0751, Econometric Society.
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  17. Paolo Ghirardato & Fabio Maccheroni & Massimo Marinacci & Marciano Siniscalchi, 2003. "A Subjective Spin on Roulette Wheels," Econometrica, Econometric Society, vol. 71(6), pages 1897-1908, November.
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  24. Itzhak Gilboa & David Schmeidler, 1989. "Maxmin Expected Utility with Non-Unique Prior," Post-Print hal-00753237, HAL.
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