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Worst-case expected utility

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  • Alon, Shiri

Abstract

The paper presents a model in which a decision maker, having a preference relation over purely subjective acts, slightly deviates from the Subjective Expected Utility decision rule, exhibiting an uncertainty averse behavior á-la Schmeidler (1989). The resulting representation is as if the decision maker adds to the formulation of the problem one new state, representing the occurrence of some unforeseen event. Each Savage act is extended to the new, endogenous state by assigning this state with the worst consequence the act obtains on all other, primitive states. On the extended decision problem a Subjective Expected Utility rule is applied. The representation thus expresses the common practice of a ‘worst-case scenario’ assumption as means to cope with unforeseen contingencies. The model is a special case of the neo-additive capacities model of Chateauneuf, Eichberger and Grant.

Suggested Citation

  • Alon, Shiri, 2015. "Worst-case expected utility," Journal of Mathematical Economics, Elsevier, vol. 60(C), pages 43-48.
  • Handle: RePEc:eee:mateco:v:60:y:2015:i:c:p:43-48
    DOI: 10.1016/j.jmateco.2015.06.017
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    References listed on IDEAS

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    1. Chateauneuf, Alain & Eichberger, Jurgen & Grant, Simon, 2007. "Choice under uncertainty with the best and worst in mind: Neo-additive capacities," Journal of Economic Theory, Elsevier, vol. 137(1), pages 538-567, November.
    2. Itzhak Gilboa & David Schmeidler, 1992. "Additive Representation of Non-Additive Measures and the Choquet Integral," Discussion Papers 985, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. Itzhak Gilboa, 1988. "A Combination of Expected Utility and Maxmin Decision Criteria," Post-Print hal-00753244, HAL.
    4. Grant, Simon & Quiggin, John, 2013. "Bounded awareness, heuristics and the Precautionary Principle," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 17-31.
    5. Jean-Yves Jaffray & Meglena Jeleva, 2011. "How to deal with partially analyzable acts?," Theory and Decision, Springer, vol. 71(1), pages 129-149, July.
    6. Marie-Louise Vierø, 2009. "Exactly what happens after the Anscombe–Aumann race?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 41(2), pages 175-212, November.
    7. Klaus Nehring, 1999. "Preference for Flexibility in a Savage Framework," Econometrica, Econometric Society, vol. 67(1), pages 101-120, January.
    8. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    9. Alon, Shiri & Schmeidler, David, 2014. "Purely subjective Maxmin Expected Utility," Journal of Economic Theory, Elsevier, vol. 152(C), pages 382-412.
    10. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
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    Cited by:

    1. Karni, Edi & Vierø, Marie-Louise, 2017. "Awareness of unawareness: A theory of decision making in the face of ignorance," Journal of Economic Theory, Elsevier, vol. 168(C), pages 301-328.
    2. Pivato, Marcus & Vergopoulos, Vassili, 2017. "Subjective expected utility representations for Savage preferences on topological spaces," MPRA Paper 77359, University Library of Munich, Germany.
    3. Pivato, Marcus & Vergopoulos, Vassili, 2018. "Subjective expected utility with topological constraints," MPRA Paper 85749, University Library of Munich, Germany.

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