Preference for safety under the Choquet model: in search of a characterization

Michèle Cohen and Isaac Meilijson ()
Additional contact information
Isaac Meilijson: TAU - School of Mathematical Sciences [Tel Aviv] - TAU - Raymond and Beverly Sackler Faculty of Exact Sciences [Tel Aviv] - TAU - Tel Aviv University

PSE-Ecole d'économie de Paris (Postprint) from HAL

Abstract: Victor prefers safety more than Ursula if whenever Ursula prefers a constant to an uncertain act, so does Victor. This paradigm, whose expected utility (EU) version is Arrow and Pratt's more risk aversion concept, will be studied in the Choquet expected utility (CEU) model. Necessary condition Pointwise inequality between a function of the utility functions and another of the capacities is necessary and sufficient for the preference by Victor of safety over a dichotomous act whenever such is the preference of Ursula. However, increased preference for safety versus dichotomous acts does not imply preference by Victor of safety over a general act whenever such is the preference of Ursula. A counterexample will be provided, via the casino theory of Dubins and Savage. Sufficient condition Separation of the two functions by some convex function is sufficient for Victor to prefer safety more than Ursula, over general acts. Furthermore, a condition on the capacities will be presented for simplicity seeking, the preference by Victor over any act for some dichotomous act that leaves Ursula indifferent. This condition is met in particular if Victor's capacity is a convex function of Ursula's capacity. For these cases, the pointwise inequality (necessary) condition is a characterization of greater preference for safety, extending the Arrow-Pratt notion from EU to CEU and rank-dependent utility (RDU). These inequalities preserve the flavor of the "more pessimism than greediness" characterization of monotone risk aversion by Chateauneuf, Cohen and Meilijson in the RDU model and its extension by Grant and Quiggin to CEU. Preferences between safety and dichotomous acts are at the core of the biseparable preferences model of Ghirardato and Marinacci.

Keywords: Choquet utility; Casino; Greediness; Pessimism; Rank-dependent utility; Risk aversion; Uncertainty (search for similar items in EconPapers)
Date: 2014-04
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Published in Economic Theory, 2014, 55 (3), pp.619-642. ⟨10.1007/s00199-013-0762-2⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Preference for safety under the Choquet model: in search of a characterization (2014)
Working Paper: Preference for safety under the Choquet model: in search of a characterization (2014)
Working Paper: Preference for safety under the Choquet model: in search of a characterization (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:hal-00840001

DOI: 10.1007/s00199-013-0762-2

Access Statistics for this paper

More papers in PSE-Ecole d'économie de Paris (Postprint) from HAL
Bibliographic data for series maintained by Caroline Bauer ().