Expected Utility under Uncertainty

Ebbe Hendon, Hans Jørgen Jacobsen, Birgitte Sloth () and Torben Tranaes ()
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Ebbe Hendon: Institute of Economics, University of Copenhagen
Hans Jørgen Jacobsen: Institute of Economics, University of Copenhagen

No 92-09, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: An uncertain and not just risky situation may be modeled using so-called belief functions assigning lower probabilities to events, that is, to sets of possible outcomes. In this paper we introduce an axiom of consistency by which we extend the von Neumann-Morgenstern expected utility theory to belief functions. We use this theory to characterize uncertainty neutrality and two different degrees of uncertainty aversion.

Keywords: uncertainty; belief functions; expected utility theory; consistency (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 26 pages
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9209

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