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Certainty Independence and the Separation of Utility and Beliefs

  • Ghirardato, Paolo
  • Maccheroni, Fabio
  • Marinacci, Massimo

Economists often operate under an implicit assumption that the tastes of a decision maker are constant, while his beliefs change with the availability of new information. It is therefore customary to seek representations of preferences which cleanly separate the taste component, called ‘utility,’ from the beliefs component. We show that a complete separation of utility from the other components of the representation is possible only if the decision maker’s preferences satisfy a mild but not completely innocuous condition, called ‘certainty independence.’ We prove that the preferences that obtain such separation are a subset of the biseparable preferences.nonatomic probability measures, we extend some of these results to the case of individuals with decreasing marginal evaluations.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 120 (2005)
Issue (Month): 1 (January)
Pages: 129-136

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Handle: RePEc:eee:jetheo:v:120:y:2005:i:1:p:129-136
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Epstein, Larry G, 1999. "A Definition of Uncertainty Aversion," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 579-608, July.
  2. 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.
  3. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February.
  4. Massimo Marinacci & Paolo Ghirardato, 2001. "Risk, ambiguity, and the separation of utility and beliefs," ICER Working Papers - Applied Mathematics Series 21-2001, ICER - International Centre for Economic Research.
  5. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  6. F J Anscombe & R J Aumann, 2000. "A Definition of Subjective Probability," Levine's Working Paper Archive 7591, David K. Levine.
  7. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
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