A Variational Model of Preference under Uncertainty

Peter C Fishburn

Journal of Risk and Uncertainty, 1994, vol. 8, issue 2, 127-52

Abstract: A familiar example devised by Daniel Ellsberg to highlight the effects of event ambiguity on preferences is transformed to separate aleatory uncertainty (chance) from epistemic uncertainty. The transformation leads to a lottery acts model whose states involve epistemic uncertainty; aleatory uncertainty enters into the state-dependent lotteries. The model proposes von Neumann-Morgenstern utility for lotteries, additive subjective probability for states, and the use of across-states standard deviation weighted by a coefficient of aversion to variability to account for departures from Anscombe-Aumann subjective expected utility. Properties of the model are investigated and a partial axiomatization is provided. Copyright 1994 by Kluwer Academic Publishers

Date: 1994
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