Generalized NEO-EU Preferences and the Falsifability of Ambiguity Theories

Manuel Nunez () and Mark Schneider ()
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Manuel Nunez: University of Connecticut
Mark Schneider: University of Alabama and Economic Science Institute, Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: Axiomatic non-expected utility models are generally more difficult to falsify than expected utility theory as they are less restrictive (by weakening the independence axiom). Recent work computes the Vapnik-Chervonenkis (VC) dimension of a theory to determine the extent to which the theory is falsifiable. Popular ambiguity theories have VC dimensions that increase exponentially in the number of states or that are infinite, whereas the VC dimension of expected utility theory increases linearly in the number of states. In this paper we axiomatically characterize the class of generalized non-extreme outcome expected utility (NEO-EU) preferences in the Anscombe-Aumann framework and show that their VC dimension increases linearly in the number of states. Our paper shows that this popular class of ambiguity preferences which has been broadly applied provides a counter-example to the conjecture that axiomatic models of ambiguity attitudes are substantially more difficult to falsify than expected utility theory.

Keywords: Generalized NEO-EU; Choice under Ambiguity; Decision Theory (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:24-15

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