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Benchmarking real-valued acts

Author

Listed:
  • Erio Castagnoli

    (Bocconii University, Milan, Italy)

  • Marco LiCalzi

    (University of Venice, Italy)

Abstract

A benchmarking procedure ranks real-valued acts by the probability that they outperform a benchmark B; that is, an act f is evaluated by means of the functional V(f) = P(f > B). Expected utility is a special case of benchmarking procedure, where the acts and the benchmark are stochastically independent. This paper provides axiomatic characterizations of preference relations that are representable as benchmarking procedures. The key axiom is the sure-thing principle. When the state space is infinite, different continuity assumptions translate into different properties of the probability P.

Suggested Citation

  • Erio Castagnoli & Marco LiCalzi, 2005. "Benchmarking real-valued acts," Microeconomics 0502001, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0502001
    Note: Type of Document - pdf; pages: 22
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    References listed on IDEAS

    as
    1. Wakker, Peter, 1993. "Counterexamples to Segal's Measure Representation Theorem," Journal of Risk and Uncertainty, Springer, vol. 6(1), pages 91-98, January.
    2. W. M. Gorman, 1968. "The Structure of Utility Functions," Review of Economic Studies, Oxford University Press, vol. 35(4), pages 367-390.
    3. Chateauneuf, Alain, 1999. "Comonotonicity axioms and rank-dependent expected utility theory for arbitrary consequences," Journal of Mathematical Economics, Elsevier, vol. 32(1), pages 21-45, August.
    4. Segal, Uzi, 1993. "The Measure Representation: A Correction," Journal of Risk and Uncertainty, Springer, vol. 6(1), pages 99-107, January.
    5. LiCalzi, Marco, 1998. "Variations on the measure representation approach," Journal of Mathematical Economics, Elsevier, vol. 29(3), pages 255-269, April.
    6. Erio Castagnoli & Marco LiCalzi, 2005. "Expected utility without utility," Game Theory and Information 0508004, EconWPA.
    7. Robert Bordley & Marco LiCalzi, 2000. "Decision analysis using targets instead of utility functions," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 23(1), pages 53-74.
    8. Gerard Debreu, 1959. "Topological Methods in Cardinal Utility Theory," Cowles Foundation Discussion Papers 76, Cowles Foundation for Research in Economics, Yale University.
    9. Hong, Chew Soo & Wakker, Peter, 1996. "The Comonotonic Sure-Thing Principle," Journal of Risk and Uncertainty, Springer, vol. 12(1), pages 5-27, January.
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    Citations

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    Cited by:

    1. Stergios Athanasoglou & Valentina Bosetti & Laurent Drouet, 2017. "A Simple Framework for Climate-Change Policy under Model Uncertainty," Working Papers 2017.13, Fondazione Eni Enrico Mattei.
    2. Hill, Brian, 2010. "An additively separable representation in the Savage framework," Journal of Economic Theory, Elsevier, vol. 145(5), pages 2044-2054, September.
    3. Marco Maggis, 2018. "Stochastic Dynamic Utilities and Inter-Temporal Preferences," Papers 1803.05244, arXiv.org.
    4. Enrico G. De Giorgi & David B. Brown & Melvyn Sim, 2010. "Dual representation of choice and aspirational preferences," University of St. Gallen Department of Economics working paper series 2010 2010-07, Department of Economics, University of St. Gallen.
    5. David B. Brown & Enrico De Giorgi & Melvyn Sim, 2012. "Aspirational Preferences and Their Representation by Risk Measures," Management Science, INFORMS, vol. 58(11), pages 2095-2113, November.

    More about this item

    Keywords

    sure-thing principle; state-dependent expected utility; measure representation approach; target-based reasoning;

    JEL classification:

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

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