On Microfoundations of Yaari's Dual Theory of Choice

Sergei Guriev

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Abstract: We show that Yaari's dual theory of choice under risk may be derived as an indirect utility when a risk-neutral agent faces financial imperfections. We consider an agent that maximizes expected discounted cash flows under a bid-ask spread in the credit market. It turns out that the agent evaluates lotteries as if she were maximizing Yaari's dual utility function. We also generalize the dual theory of choice for unbounded lotteries.

Keywords: dual theory of choice; financial imperfections (search for similar items in EconPapers)
Date: 2001
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Published in Geneva Risk and Insurance Review, 2001, 26 (2), pp.117-137. ⟨10.1023/A:1014382530086⟩

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Working Paper: On Microfoundations of Yaari's Dual Theory of Choice (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:spmain:hal-03595500

DOI: 10.1023/A:1014382530086

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