Risk, ambiguity, and the separation of utility and beliefs

Massimo Marinacci and Paolo Ghirardato

ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research

Abstract: We introduce a general model of static choice under uncertainty, arguably the weakest model achieving a separation of cardinal utility and a unique representation of beliefs. Most of the non-expected utility models existing in the literature are special cases of it. Such separation is motivated by the view that tastes are constant, whereas beliefs change with new information. The model has a simple and natural axiomatization. Elsewhere (forthcoming) we show that it can be very helpful in the characterization of a notion of ambiguity aversion, as separating utility and beliefs allows to identify and remove aspects of risk attitude from the decision maker’s behavior. Here we show that the model allows to generalize several results on the characterization of risk aversion in betting behavior. These generalizations are of independent interest, as they show that some traditional results for subjective expected utility preferences can be formulated only in terms of binary acts.

Pages: 38 pages
Date: 2001-07
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Citations: View citations in EconPapers (83)

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Related works:
Working Paper: Risk, Ambiguity, and the Separation of Utility and Beliefs (2000)
Working Paper: Risk, Ambigity and the Separation of Utility and Beliefs (2000)
Working Paper: Risk, Ambiguity and the Separation of Utility and Beliefs (2000)
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