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Hurwicz expected utility and subjective sources

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  • Gul, Faruk
  • Pesendorfer, Wolfgang

Abstract

In experiments, subjects are often not indifferent among all sources of uncertainty; between two prospects yielding the same distribution of monetary rewards, they may strictly prefer one over the other. We formulate a special case of α-maxmin expected utility theory in a Savage setting, show that every decision maker perceives multiple subjective sources, and that source-utilities are rank dependent expected utility. A power series identifies each source, measures source-uncertainty, and determines the agent's source-specific risk attitude. Subjective sources relate Ellsberg-paradox behavior to source preference and to Allais-paradox behavior.

Suggested Citation

  • Gul, Faruk & Pesendorfer, Wolfgang, 2015. "Hurwicz expected utility and subjective sources," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 465-488.
  • Handle: RePEc:eee:jetheo:v:159:y:2015:i:pa:p:465-488
    DOI: 10.1016/j.jet.2015.05.007
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    References listed on IDEAS

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    Cited by:

    1. Mayumi Horie, 2016. "Bayesian Updating for Complementarily Additive Beliefs under Ambiguity," KIER Working Papers 935, Kyoto University, Institute of Economic Research.
    2. Müller, Julia & Li, Zhihua & Wakker, Peter P. & Wang, Tong V., 2016. "The Rich Domain of Ambiguity Explored," Annual Conference 2016 (Augsburg): Demographic Change 145734, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Ambiguity; Source preference; Allais paradox;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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