Expected balanced uncertain utility

Simon Grant, Berend Roorda () and Jingni Yang ()
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Berend Roorda: Department of Economics, University Twente
Jingni Yang: School of Economics, University of Sydney

Theoretical Economics, 2025, vol. 20, issue 1

Abstract: We introduce and analyze expected balanced uncertain utility (EBUU) theory. A prior and a balanced outcome-set utility characterize an EBUU decision maker. Conditional on a reference or ``balancing value'', the latter assigns a utility to each outcome-set. The decision maker associates with each act, its envelope, the minimal measurable mapping from states to outcome-sets that contains the act. She then (implicitly) ranks an act according to the balancing value at which the expected balanced utility of its associated envelope is zero. As a consequence her risk preferences need only exhibit betweenness allowing or behavior that can accommodate Allais-type paradoxes.

Keywords: Uncertainty; ambiguity; betweenness (search for similar items in EconPapers)
JEL-codes: D80 D81 (search for similar items in EconPapers)
Date: 2025-01-28
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