Unbounded probabilistic sophistication
I extend Machina and Schmeidler's (1992) model of probabilistic sophistication to unbounded uncertain prospects (acts) and derive risk preferences over the induced probability distributions (lotteries) with unbounded support. For example, risk preferences can be derived over normal, exponential, and Poisson families of probability distributions. My extension uses a version of Arrow's (1970) Monotone Continuity, which implies countable additivity for subjective beliefs and a novel property of tail-continuity for the revealed risk preferences. On the other hand, I do not assume P6 (Small Event Continuity) that is used both by Savage (1954) and Machina-Schmeidler.
References listed on IDEAS
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- Machina,Mark & Schmeidler,David, 1991.
"A more robust definition of subjective probability,"
Discussion Paper Serie A
365, University of Bonn, Germany.
- Machina, Mark J & Schmeidler, David, 1992. "A More Robust Definition of Subjective Probability," Econometrica, Econometric Society, vol. 60(4), pages 745-80, July.
- Mark J. Machina & David Schmeidler, 1990. "A More Robust Definition of Subjective Probability," Discussion Paper Serie A 306, University of Bonn, Germany.
- 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.
- Massimo Marinacci, 2002.
"Probabilistic Sophistication and Multiple Priors,"
Econometric Society, vol. 70(2), pages 755-764, March.
- Massimo Marinacci & Fabio Maccheroni & Alain Chateauneuf & Jean-Marc Tallon, 2003.
"Monotone Continuous Multiple Priors,"
ICER Working Papers - Applied Mathematics Series
30-2003, ICER - International Centre for Economic Research.
- Alain Chateauneuf & Fabio Macheronni & Massimo Marinacci & Jean-Marc Tallon, 2005. "Monotone continuous multiple priors," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00177057, HAL.
- Wakker, Peter, 1993. "Savage's Axioms Usually Imply Violation of Strict Stochastic Dominance," Review of Economic Studies, Wiley Blackwell, vol. 60(2), pages 487-93, April.
- Kopylov, Igor, 2010. "Simple axioms for countably additive subjective probability," Journal of Mathematical Economics, Elsevier, vol. 46(5), pages 867-876, September.
- Sarin, Rakesh & Wakker, Peter P., 2000. "Cumulative dominance and probabilistic sophistication," Mathematical Social Sciences, Elsevier, vol. 40(2), pages 191-196, September.
- 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.
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