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Probabilistic sophistication and variational preferences

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  • Tomasz, Strzalecki

Abstract

This paper shows that in the class of variational preferences the notion of probabilistic sophistication is equivalent to expected utility as long as there exists at least one event such that the independence axiom holds for bets on that event. This extends the result of Marinacci (2002) [13] and provides a novel interpretation of his result.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022053111000949
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 146 (2011)
Issue (Month): 5 (September)
Pages: 2117-2125

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Handle: RePEc:eee:jetheo:v:146:y:2011:i:5:p:2117-2125
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

Keywords: Ambiguity aversion Probabilistic sophistication Expected utility Variational preferences;

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  1. Itzhak Gilboa & David Schmeidler, 1989. "Maxmin Expected Utility with Non-Unique Prior," Post-Print hal-00753237, HAL.
  2. Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M. & Montrucchio, L., 2011. "Uncertainty averse preferences," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1275-1330, July.
  3. Massimo Marinacci, 2001. "Probabilistic sophistication and multiple priors," ICER Working Papers - Applied Mathematics Series 08-2001, ICER - International Centre for Economic Research.
  4. Sarin, Rakesh & Wakker, Peter P., 2000. "Cumulative dominance and probabilistic sophistication," Mathematical Social Sciences, Elsevier, vol. 40(2), pages 191-196, September.
  5. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  6. Machina,Mark & Schmeidler,David, 1991. "A more robust definition of subjective probability," Discussion Paper Serie A 365, University of Bonn, Germany.
  7. Chew Soo Hong & Jacob S. Sagi, 2006. "Event Exchangeability: Probabilistic Sophistication Without Continuity or Monotonicity," Econometrica, Econometric Society, vol. 74(3), pages 771-786, 05.
  8. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
  9. Thomas J. Sargent & LarsPeter Hansen, 2001. "Robust Control and Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 60-66, May.
  10. Simon Grant & Atsushi Kajii, 2005. "Probabilistically Sophisticated Multiple Priors," KIER Working Papers 608, Kyoto University, Institute of Economic Research.
  11. Grant, Simon, 1995. "Subjective Probability without Monotonicity: Or How Machina's Mom May Also Be Probabilistically Sophisticated," Econometrica, Econometric Society, vol. 63(1), pages 159-89, January.
  12. Cerreia-Vioglio, Simone & Maccheroni, Fabio & Marinacci, Massimo & Montrucchio, Luigi, 2012. "Probabilistic sophistication, second order stochastic dominance and uncertainty aversion," Journal of Mathematical Economics, Elsevier, vol. 48(5), pages 271-283.
  13. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
  14. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
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Cited by:

  1. Claudia Ravanelli & Gregor Svindland, 2014. "Comonotone Pareto optimal allocations for law invariant robust utilities on L 1," Finance and Stochastics, Springer, vol. 18(1), pages 249-269, January.
  2. Werner, Jan, 2011. "Risk aversion for variational and multiple-prior preferences," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 382-390.
  3. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2010. "Probabilistic Sophistication, Second Order Stochastic Dominance, and Uncertainty Aversion," Carlo Alberto Notebooks 174, Collegio Carlo Alberto.
  4. Simone Cerreia-Vioglio & Paolo Ghirardato & Fabio Maccheroni & Massimo Marinacci & Marciano Siniscalchi, 2011. "Rational preferences under ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 341-375, October.
  5. Thomas Knispel & Roger J. A. Laeven & Gregor Svindland, 2016. "Robust Optimal Risk Sharing and Risk Premia in Expanding Pools," Papers 1601.06979, arXiv.org.
  6. Sergio Almeida & Marcos Rangel, 2016. "Probabilistic Sophistication, Sources Of Uncertainty, And Cognitive Ability: Experimental Evidence," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42ndd Brazilian Economics Meeting] 131, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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