A Non-Bayesian Theory of State-Dependent Utility

Brian Hill ()
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Brian Hill: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: Many decision situations involve two or more of the following divergences from subjective expected utility: imprecision of beliefs (or ambiguity), imprecision of tastes (or multi-utility), and state dependence of utility. Examples include multi-attribute decisions under uncertainty, such as some climate decisions, where trade-offs across attributes may be state dependent. This paper proposes and characterises a model of uncertainty averse preferences that can simultaneously incorporate all three phenomena. The representation supports a principled separation of (imprecise) beliefs and (potentially state-dependent, imprecise) tastes, and we pinpoint the axiom that ensures such a separation. Moreover, the representation supports comparative statics of both beliefs and tastes, and is modular: it easily delivers special cases involving various combinations of the phenomena, as well as state-dependent multi-utility generalisations of popular ambiguity models.

Keywords: state-dependent utility; uncertainty aversion; multiple priors; ambiguity; imprecise tastes; multi-utility (search for similar items in EconPapers)
Date: 2017-12-07
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-01933826

DOI: 10.2139/ssrn.3177028

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