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Cardinal Utility Representation Separating Ambiguous Beliefs and Utility

Mayumi Horie ()
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Mayumi Horie: Hiroshima University of Economics

No 972, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper proposes the weaker axioms which admit a cardinal utility representation under ambiguity separating ambiguous beliefs and utility over consequences in a purely subjective setting. The representation is obtained in an implicit form, which corresponds to the disappointment aversion utility (Gul, 1991) with respect to a nonadditive measure in place of a probability measure. It includes all the properties of cardinality, ambiguity aversion, reference dependency, gain/loss asymmetry, and the distortion in probability evaluations. It enables us to capture varying attitude toward ambiguity such as the subjective common ratio e?ect and to explain Machina?s examples (2009, 2014) in the simplest way.

Keywords: isometry; implicit representation; biseparable preference; rank dependent utility; disappointment aversion; common ratio effect (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-upt
Date: 2017-04
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