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A nonsmooth approach to nonexpected utility theory under risk

  • Chatterjee, Kalyan
  • Vijay Krishna, R.
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    We consider concave and Lipschitz continuous preference functionals over monetary lotteries. We show that they possess an envelope representation, as the minimum of a bounded family of continuous vN-M preference functionals. This allows us to use an envelope theorem to show that results from local utility analysis still hold in our setting, without any further differentiability assumptions on the preference functionals. Finally, we provide an axiomatisation of a class of concave preference functionals that are Lipschitz.

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    Article provided by Elsevier in its journal Mathematical Social Sciences.

    Volume (Year): 62 (2011)
    Issue (Month): 3 ()
    Pages: 166-175

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    Handle: RePEc:eee:matsoc:v:62:y:2011:i:3:p:166-175
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505565

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    7. Haluk Ergin & Todd Sarver, 2010. "A Unique Costly Contemplation Representation," Econometrica, Econometric Society, vol. 78(4), pages 1285-1339, 07.
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    10. Hong, Chew Soo & Karni, Edi & Safra, Zvi, 1987. "Risk aversion in the theory of expected utility with rank dependent probabilities," Journal of Economic Theory, Elsevier, vol. 42(2), pages 370-381, August.
    11. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-86, May.
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