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Choice under uncertainty with the best and worst in mind: neo-additive capacities

Author

Listed:
  • Alain Chateauneuf

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Jürgen Eichberger

    (Department of Economics - Universität Heidelberg [Heidelberg] = Heidelberg University)

  • Simon Grant

    (Department of Economics - Rice University [Houston])

Abstract

We develop the simplest generalization of subjective expected utility that can accommodate both optimistic and pessimistic attitudes towards uncertainty--Choquet expected utility with non-extreme-outcome-additive (neo-additive) capacities. A neo-additive capacity can be expressed as the convex combination of a probability and a special capacity, we refer to as a Hurwicz capacity, that only distinguishes between whether an event is impossible, possible or certain. We show that neo-additive capacities can be readily applied in economic problems, and we provide an axiomatization in a framework of purely subjective uncertainty.

Suggested Citation

  • Alain Chateauneuf & Jürgen Eichberger & Simon Grant, 2007. "Choice under uncertainty with the best and worst in mind: neo-additive capacities," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00271279, HAL.
    • Handle: RePEc:hal:cesptp:hal-00271279
    DOI: 10.1016/j.jet.2007.01.017
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    JEL classification:

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

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