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A simple and general axiomatization of average utility maximization for infinite streams

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  • Li, Chen
  • Wakker, Peter P.

Abstract

This paper provides the most general preference axiomatization of average utility (AU) maximization over infinite sequences presently available, reaching almost complete generality. The only restriction is that all periodic sequences should be contained in the domain. Infinite sequences may designate intertemporal outcomes streams where AU models patience, welfare allocations where AU models fairness, or decisions under ambiguity where AU models complete ignorance. As a methodological contribution, this paper shows that infinite-dimensional representations can be simpler, rather than more complex, than finite-dimensional ones. Infinite dimensions provide a richness that may be convenient rather than cumbersome. In particular, (empirically problematic) continuity assumptions are not needed in our axiomatization. Continuity is optional.

Suggested Citation

  • Li, Chen & Wakker, Peter P., 2024. "A simple and general axiomatization of average utility maximization for infinite streams," Journal of Economic Theory, Elsevier, vol. 216(C).
    • Handle: RePEc:eee:jetheo:v:216:y:2024:i:c:s0022053124000012
    DOI: 10.1016/j.jet.2024.105795
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    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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