Scale-invariant uncertainty-averse preferences and source-dependent constant relative risk aversion
Preferences are defined over payoffs that are contingent on a finite number of states representing a horse race (Knightian uncertainty) and a roulette (objective risk). The class of scale-invariant (SI) ambiguity-averse preferences, in a broad sense, is uniquely characterized by a multiple-prior utility representation. Adding a weak certainty independence axiom is shown to imply either unit CRRA toward roulette risk or SI maxmin expected utility. Removing the weak independence axiom but adding a separability assumption on preferences over pure horse-race bets leads to source-dependent constant-relative-risk-aversion expected utility with a higher CRRA assigned to horse-race uncertainty than to roulette risk. The multiple-prior representation in this case is shown to generalize entropic variational preferences. An appendix characterizes the functional forms associated with SI ambiguity-averse preferences in terms of suitable weak independence axioms in place of scale invariance.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tomasz Strzalecki, 2011.
"Axiomatic Foundations of Multiplier Preferences,"
Econometric Society, vol. 79(1), pages 47-73, 01.
- Tomasz Strzalecki, 2011. "Axiomatic Foundations of Multiplier Preferences," Levine's Working Paper Archive 786969000000000126, David K. Levine.
- Tomasz Strzalecki, "undated". "Axiomatic Foundations of Multiplier Preferences," Working Paper 8239, Harvard University OpenScholar.
- Strzalecki, Tomasz, 2011. "Axiomatic Foundations of Multiplier Preferences," Scholarly Articles 14397610, Harvard University Department of Economics.
- Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M. & Montrucchio, L., 2011.
"Uncertainty averse preferences,"
Journal of Economic Theory,
Elsevier, vol. 146(4), pages 1275-1330, July.
- Werner, Jan, 2005. "A simple axiomatization of risk-averse expected utility," Economics Letters, Elsevier, vol. 88(1), pages 73-77, July.
- Chateauneuf, Alain & Faro, José Heleno, 2009.
"Ambiguity through confidence functions,"
Journal of Mathematical Economics,
Elsevier, vol. 45(9-10), pages 535-558, September.
- Alain Chateauneuf & José Heleno Faro, 2009. "Ambiguity through confidence functions," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00634651, HAL.
When requesting a correction, please mention this item's handle: RePEc:the:publsh:1004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin J. Osborne)
If references are entirely missing, you can add them using this form.