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Risk, Ambigity and the Separation of Utility and Beliefs

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  • Ghirardato, Paolo
  • Marinacci, Massimo

Abstract

We introduce and characterize axiomatically a general model of static choice under uncertainty, which is possibly the weakest model in which a separation of cardinal utility and a representation of beliefs is achieved. Most of the popular non-expected utility models in the literature are special cases of it. To prove its usefulness, we show that the model can be used to generalize several well known results on the characterization of risk aversion. Elsewhere [15] we have shown that it can be fruitfully applied to the problem of characterizing a notion of ambiguity aversion, as the separation of utility and beliefs that we achieve can be used to identify and remove aspects of risk attitude from the decision maker's behavior.

Suggested Citation

  • Ghirardato, Paolo & Marinacci, Massimo, 2000. "Risk, Ambigity and the Separation of Utility and Beliefs," Working Papers 1085, California Institute of Technology, Division of the Humanities and Social Sciences.
    • Handle: RePEc:clt:sswopa:1085
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    References listed on IDEAS

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    3. Jean-Marc Tallon & Alain Chateauneuf, 2002. "Diversification, convex preferences and non-empty core in the Choquet expected utility model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 509-523.
    4. Jean-Marc Tallon & Alain Chateauneuf, 2002. "Diversification, convex preferences and non-empty core in the Choquet expected utility model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 509-523.
    5. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
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    Keywords

    Risk Aversion; Ambiguity Aversion; Biseparable Preferences; Choquet Expected Utility; Maxmin Expected Utility; Probabilistic Beliefs;
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