Optimism and Pessimism with Expected Utility, Second Version

David Dillenberger (), Andrew Postlewaite and Kareen Rozen ()
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David Dillenberger: Department of Economics, University of Pennsylvania

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: Savage (1954) provided axioms on preferences over acts that were equivalent to the existence of an expected utility representation. We show that there is a continuum of other expected utility" representations in which for any act, the probability distribution over states depends on the corresponding outcomes. We suggest that optimism and pessimism can be captured by the stake-dependent probabilities in these alternative representations. Extending the DM's preferences to be defined on both subjective acts and objective lotteries, we suggest how one may distinguish optimists from pessimists and separate attitude towards uncertainty from curvature of the utility function over monetary prizes.

Keywords: Subjective expected utility; optimism; pessimism; stake-dependent probability (search for similar items in EconPapers)
JEL-codes: D80 D81 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2011-08-01, Revised 2012-08-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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