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A Non‐Bayesian Theory of State‐Dependent Utility

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  • Brian Hill

Abstract

Many decision situations involve two or more of the following divergences from subjective expected utility: imprecision of beliefs (or ambiguity), imprecision of tastes (or multi‐utility), and state dependence of utility. This paper proposes and characterizes a model of uncertainty averse preferences that can simultaneously incorporate all three phenomena. The representation supports a principled separation of (imprecise) beliefs and (potentially state‐dependent, imprecise) tastes. Moreover, the representation permits comparative statics separating the roles of beliefs and tastes, and is modular: it easily delivers special cases involving various combinations of the phenomena, as well as state‐dependent multi‐utility generalizations covering popular ambiguity models.

Suggested Citation

  • Brian Hill, 2019. "A Non‐Bayesian Theory of State‐Dependent Utility," Econometrica, Econometric Society, vol. 87(4), pages 1341-1366, July.
    • Handle: RePEc:wly:emetrp:v:87:y:2019:i:4:p:1341-1366
    DOI: 10.3982/ECTA15916
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    Cited by:

    1. Chi, Yichun & Zhuang, Sheng Chao, 2022. "Regret-based optimal insurance design," Insurance: Mathematics and Economics, Elsevier, vol. 102(C), pages 22-41.
    2. Hill, Brian, 2023. "Beyond uncertainty aversion," Games and Economic Behavior, Elsevier, vol. 141(C), pages 196-222.
    3. Kazuhiro Hara & Gil Riella, 2023. "Multiple tastes and beliefs with an infinite prize space," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(2), pages 417-444, August.
    4. Brian Hill, 2023. "Beyond Uncertainty Aversion," Post-Print hal-02428398, HAL.
    5. Wei Wang & Huifu Xu, 2023. "Preference robust state-dependent distortion risk measure on act space and its application in optimal decision making," Computational Management Science, Springer, vol. 20(1), pages 1-51, December.

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