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A general theory of subjective mixtures

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  • Paolo Ghirardato
  • Daniele Pennesi

Abstract

We provide a framework for constructing subjective mixtures which requires neither the Certainty Independence nor the Monotonicity axiom, replacing them with much weaker “local” properties. Aswe showby means of examples, this framework provides a purely subjective foundation to most of the recent preference modelswhich employ an Anscombe-Aumann setting. It also allows disentagling the notions of ambiguity aversion and preference for randomization. The scope of our framework is further demonstrated by discussing how subjective mixtures can be employed in modelling choice between menus of consequences, and also by providing a fully subjective axiomatization of Recursive Variational Preferences.

Suggested Citation

  • Paolo Ghirardato & Daniele Pennesi, 2018. "A general theory of subjective mixtures," Carlo Alberto Notebooks 573, Collegio Carlo Alberto, revised 2020.
  • Handle: RePEc:cca:wpaper:573
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    More about this item

    Keywords

    Subjective Mixture Space; Ambiguity Aversion; Preference for Randomization;
    All these keywords.

    JEL classification:

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

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