Additive-Belief-Based Preferences

David Dillenberger () and Collin Raymond ()
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David Dillenberger: University of Pennsylvania
Collin Raymond: Purdue University

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We introduce a new class of preferences — which we call additive-belief-based (ABB) —that captures a general and yet tractable approach to belief-based utility, and that encompasses many popular models in the behavioral literature. We show that the general class of ABB preferences and two prominent special cases, which allow utility to depend on each period’s beliefs but not on changes in beliefs across periods, are fully characterized by suitable relaxations of the standard Independence axiom. We identify the intersection of ABB preferences with the class of recursive preferences and characterize attitudes towards the timing of resolution of uncertainty for ABB preferences. Our approach helps to better understand, in terms of testable predictions, existing models and leads to new models that can accommodate previously uncaptured behavioral patterns.

Keywords: Anticipatory utility; Compound lotteries; Preferences over beliefs; Recursive preferences; Resolution of uncertainty (search for similar items in EconPapers)
JEL-codes: D80 D81 D83 D91 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2019-11-24, Revised 2020-07-13
New Economics Papers: this item is included in nep-mic, nep-ore and nep-upt
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