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Smooth nonexpected utility without state independence

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  • Hengjie Ai

Abstract

We propose a notion of smoothness of nonexpected utility functions, which extends the variational analysis of nonexpected utility functions to more general settings. In particular, our theory applies to state dependent utilities, as well as the multiple prior expected utility model, both of which are not possible in previous literatures. Other nonexpected utility models are shown to satisfy smoothness under more general conditions than the Frchet and Gateaux differentiability used in the literature. We give more general characterizations of monotonicity and risk aversion without assuming state independence of utility function.

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  • Hengjie Ai, 2005. "Smooth nonexpected utility without state independence," Working Papers 637, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmwp:637
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    References listed on IDEAS

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    Cited by:

    1. Polkovnichenko, Valery & Zhao, Feng, 2013. "Probability weighting functions implied in options prices," Journal of Financial Economics, Elsevier, vol. 107(3), pages 580-609.

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