Rank-Dependent Pessimism and its divergence from Maxmin Expected Utility

Youngsoo Heo

Economics Letters, 2025, vol. 250, issue C

Abstract: The distinction between pessimism and uncertainty aversion has not been fully clarified in the economics literature, largely due to their intuitive similarities. However, understanding their unique economic implications requires a precise definition of each concept. This paper introduces a decision-theoretic formalization of pessimism, termed Rank-Dependent Pessimism. While it is equivalent to the conventional notion of uncertainty aversion within Choquet Expected Utility models, the two concepts diverge in a more general setting. This raises fundamental questions, such as whether all Maxmin Expected Utility preferences can actually be classified as pessimistic.

Keywords: Pessimism; Rank-Dependent Pessimism; Uncertainty aversion; Maxmin Expected Utility (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:250:y:2025:i:c:s0165176525001338

DOI: 10.1016/j.econlet.2025.112296

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