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Vector Expected Utility and Attitudes toward Variation

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  • Marciano Siniscalchi

Abstract

This paper analyzes a model of decision under ambiguity, deemed vector expected utility or VEU. According to the proposed model, an act f, mapping states of nature to prizes, is evaluated via the sum of (1) a baseline expected-utility term, and (2) an ambiguity-adjustment term. The adjustment term may be interpreted as reflecting the variability of the act f around its baseline expected utility; in particular, like classical statistical measures of variability, it is invariant to location and sign changes. A behavioral characterization of the VEU model is provided. Furthermore, an updating rule for VEU preferences is proposed and characterized. The suggested updating rule facilitates the analysis of sophisticated dynamic choice with VEU preferences.

Suggested Citation

  • Marciano Siniscalchi, 2007. "Vector Expected Utility and Attitudes toward Variation," Discussion Papers 1455, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1455
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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