Characterizing Uncertainty Aversion Through Preference for Mixtures

Peter Kilbanoff

No 1159, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: Uncertainty aversion is often modelled as (strict) quasi-concavity of preferences over uncertain acts. A theory of uncertainty aversion may be characterized by the pairs of acts for which strict preference for a mixture between them is permitted. This paper provides such a characterization for two leading representations of uncertainty averse preferences; those of Schmeidler [20] (Choquet expected utility) and of Gilboa and Schmeidler [13] (maxmin expected utility with a non-unique prior). This characterization clarifies the relation between the two theories.

Date: 1996-07
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