Mean-preserving capacities: A tractable class of Choquet capacities

Richard Peter () and Pascal Toquebeuf ()
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Richard Peter: University of Iowa [Iowa City]
Pascal Toquebeuf: GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes

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Abstract: This paper introduces mean-preserving capacities for Choquet expected utility. A capacity is defined as mean-preserving when the value assigned to an event falls within an interval centered around its subjective probability, with the interval's size reflecting the perceived level of ambiguity. These capacities are based on the complementary independence axiom and feature a centrally symmetric core for decision-makers who are averse to ambiguity. To illustrate their practical value, we explore a series of economic applications including portfolio choice, self-insurance and self-protection, the value of a statistical life, and precautionary saving. Mean-preserving capacities offer intuitive predictions for both ambiguity-averse and ambiguity-loving individuals, often requiring fewer or no ancillary assumptions than alternative models. Moreover, they simplify the analysis of greater ambiguity considerably.

Keywords: Choquet expected utility; Mean-preserving capacity; Comparative statics; Ambiguity attitude; Ambiguity (search for similar items in EconPapers)
Date: 2025-10-19
New Economics Papers: this item is included in nep-mic and nep-upt
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Published in Economic Theory, 2025, ⟨10.1007/s00199-025-01688-8⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05324776

DOI: 10.1007/s00199-025-01688-8

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