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Hurwicz expected utility and subjective sources

Listed author(s):
  • Gul, Faruk
  • Pesendorfer, Wolfgang

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022053115000861
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 159 (2015)
Issue (Month): PA ()
Pages: 465-488

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Handle: RePEc:eee:jetheo:v:159:y:2015:i:pa:p:465-488
DOI: 10.1016/j.jet.2015.05.007
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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