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Subjective Expected Utility Theory without States of the World

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  • Edi Karni

Abstract

This paper develops an axiomatic theory of decision making under uncertainty that dispenses with the state space. The results are subjective expected utility models with unique, action-dependent, subjective probabilities, and a utility function defined over wealth-effect pairs that is unique up to positive linear transformation.

Suggested Citation

  • Edi Karni, 2005. "Subjective Expected Utility Theory without States of the World," Economics Working Paper Archive 523, The Johns Hopkins University,Department of Economics.
  • Handle: RePEc:jhu:papers:523
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    References listed on IDEAS

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    1. Luce, R Duncan & Krantz, David H, 1971. "Conditional Expected Utility," Econometrica, Econometric Society, vol. 39(2), pages 253-271, March.
    2. Karni, Edi, 2007. "Foundations of Bayesian theory," Journal of Economic Theory, Elsevier, vol. 132(1), pages 167-188, January.
    3. Costis Skiadas, 1997. "Conditioning and Aggregation of Preferences," Econometrica, Econometric Society, vol. 65(2), pages 347-368, March.
    4. Karni, Edi, 1996. "Probabilities and Beliefs," Journal of Risk and Uncertainty, Springer, vol. 13(3), pages 249-262, November.
    5. Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Gilboa,Itzhak & Schmeidler,David, 2001. "A Theory of Case-Based Decisions," Cambridge Books, Cambridge University Press, number 9780521802345.
    7. Wakker, Peter, 1987. "Subjective probabilities for state dependent continuous utility," Mathematical Social Sciences, Elsevier, vol. 14(3), pages 289-298, December.
    8. Chambers,Robert G. & Quiggin,John, 2000. "Uncertainty, Production, Choice, and Agency," Cambridge Books, Cambridge University Press, number 9780521622448.
    9. Itzhak Gilboa & David Schmeidler, 2004. "Subjective Distributions," Theory and Decision, Springer, vol. 56(4), pages 345-357, January.
    10. Itzhak Gilboa, 1993. "Hempel, Good and Bayes," Discussion Papers 1045, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    11. James A. Mirrlees, 1976. "The Optimal Structure of Incentives and Authority Within an Organization," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 105-131, Spring.
    12. Karni Edi, 1993. "Subjective Expected Utility Theory with State-Dependent Preferences," Journal of Economic Theory, Elsevier, vol. 60(2), pages 428-438, August.
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    Citations

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    Cited by:

    1. Agastya, Murali & Slinko, Arkadii, 2015. "Dynamic choice in a complex world," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 232-258.
    2. Edi Karni, 2007. "Bayesian Decision Theory and the Representation of Beliefs," Discussion Paper Series dp444, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    3. Edi Karni, 2005. "A New Approach to Modeling Decision-Making under Uncertainty and Defining Subjective Probabilities," Economics Working Paper Archive 519, The Johns Hopkins University,Department of Economics.
    4. Simon Grant & John Quiggin, 2005. "Learning and Discovery," Risk & Uncertainty Working Papers WP7R05, Risk and Sustainable Management Group, University of Queensland.
    5. Edi Karni, 2008. "Agency theory: choice-based foundations of the parametrized distribution formulation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(3), pages 337-351, September.
    6. Dino Borie, 2016. "Expected Multi-Utility Representations by "Simplex" with Applications," GREDEG Working Papers 2016-10, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    7. Edi Karni, 2009. "A Theory of Bayesian Decision Making," EIEF Working Papers Series 0904, Einaudi Institute for Economics and Finance (EIEF), revised May 2009.
    8. Svetlana Boyarchenko & Sergei Levendorskii, 2005. "Discount factors ex post and ex ante, and discounted utility anomalies," Microeconomics 0510013, EconWPA, revised 13 Dec 2005.
    9. Vassili Vergopoulos, 2011. "Dynamic consistency for non-expected utility preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 493-518, October.
    10. Edi Karni, 2011. "A theory of Bayesian decision making with action-dependent subjective probabilities," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(1), pages 125-146, September.
    11. Edi Karni, 2009. "A theory of medical decision making under uncertainty," Journal of Risk and Uncertainty, Springer, vol. 39(1), pages 1-16, August.
    12. Karni, Edi, 2009. "A reformulation of the maxmin expected utility model with application to agency theory," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 97-112, January.
    13. Pope, Robin & Leitner, Johannes & Leopold-Wildburger, Ulrike, 2009. "Expected utility versus the changes in knowledge ahead," European Journal of Operational Research, Elsevier, vol. 199(3), pages 892-901, December.

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