Relative concave utility for risk and ambiguity

Aurelien Baillon (), Bram Driesen () and Peter Wakker

Games and Economic Behavior, 2012, vol. 75, issue 2, 481-489

Abstract: This paper presents a general technique for comparing the concavity of different utility functions when probabilities need not be known. It generalizes: (a) Yaariʼs comparisons of risk aversion by not requiring identical beliefs; (b) Kreps and Porteusʼ information-timing preference by not requiring known probabilities; (c) Klibanoff, Marinacci, and Mukerjiʼs smooth ambiguity aversion by not using subjective probabilities (which are not directly observable) and by not committing to (violations of) dynamic decision principles; (d) comparative smooth ambiguity aversion by not requiring identical second-order subjective probabilities. Our technique completely isolates the empirical meaning of utility. It thus sheds new light on the descriptive appropriateness of utility to model risk and ambiguity attitudes.

Keywords: More risk averse; More ambiguity averse; Knightian uncertainty; Subjective probability; Nonexpected utility (search for similar items in EconPapers)
JEL-codes: C02 D03 D81 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:75:y:2012:i:2:p:481-489

DOI: 10.1016/j.geb.2012.01.006

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