Cobb-Douglas Preferences under Uncertainty

José Faro

No 150, Business and Economics Working Papers from Unidade de Negocios e Economia, Insper

Abstract: This paper axiomatizes Cobb-Douglas preferences under uncertainty. First, we extend the original Trockel (1989)'s axiomatic foundation to a general state space framework based on the Strong Homotheticity Axiom, obtaining also the incomplete case a la Bewley (2002). We show that this key axiom for the Cobb Douglas expected utility speci cation is refuted by Ellsberg's uncertainty aver sion behavioral pattern. Our main result provides a set of meaningful axioms characterizing Cobb-Douglas Min-Expected Utility preferences, an important class of uncertainty averse preferences for studying the consequences of am biguity in nance and other elds. Finally, we present brie y how to obtain more general representations like the variational case.

Pages: 17 pages
Date: 2012
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Journal Article: Cobb-Douglas preferences under uncertainty (2013)
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