Hurwicz expected utility and subjective sources
Faruk Gul and
Wolfgang Pesendorfer ()
Journal of Economic Theory, 2015, vol. 159, issue PA, 465-488
In experiments, subjects are often not indifferent among all sources of uncertainty; between two prospects yielding the same distribution of monetary rewards, they may strictly prefer one over the other. We formulate a special case of α-maxmin expected utility theory in a Savage setting, show that every decision maker perceives multiple subjective sources, and that source-utilities are rank dependent expected utility. A power series identifies each source, measures source-uncertainty, and determines the agent's source-specific risk attitude. Subjective sources relate Ellsberg-paradox behavior to source preference and to Allais-paradox behavior.
Keywords: Ambiguity; Source preference; Allais paradox (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:159:y:2015:i:pa:p:465-488
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