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Bernoulli Without Bayes: A Theory of Utility-Sophisticated Preferences under Ambiguity

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  • Klaus Nehring

    (Department of Economics, University of California Davis)

Abstract

A decision-maker is utility-sophisticated if he ranks acts according to their expected utility whenever such comparisons are meaningful. We characterize utility sophistication in cases in which probabilistic beliefs are not too imprecise, and show that in these cases utility-sophisticated preferences are completely determined by consequence utilities and event attitudes captured by preferences over bets. The Anscombe-Aumann framework as employed in the classical contributions of Schmeidler (1989) and Gilboa-Schmeidler (1989) can be viewed as an important special case. For the class of utility sophisticated preferences with sufficiently precise beliefs, we also propose a definition of revealed probabilistic beliefs that overcomes the limitations of existing definitions.

Suggested Citation

  • Klaus Nehring, 2006. "Bernoulli Without Bayes: A Theory of Utility-Sophisticated Preferences under Ambiguity," Economics Working Papers 0072, Institute for Advanced Study, School of Social Science.
  • Handle: RePEc:ads:wpaper:0072
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    References listed on IDEAS

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    Cited by:

    1. Simone Cerreia-Vioglio & Paolo Ghirardato & Fabio Maccheroni & Massimo Marinacci & Marciano Siniscalchi, 2011. "Rational preferences under ambiguity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 341-375, October.
    2. Chew, Soo Hong & Sagi, Jacob S., 2008. "Small worlds: Modeling attitudes toward sources of uncertainty," Journal of Economic Theory, Elsevier, vol. 139(1), pages 1-24, March.

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    More about this item

    Keywords

    Expected Utility; Ambiguity; Probalistic Sophistication; Revealed Probabilistic Beliefs;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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