Hurwicz expected utility and subjective sources

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Abstract

In experiments, subjects are often not indifferent among all sources of uncertainty; between two prospects yielding the same distribution of monetary rewards, they may strictly prefer one over the other. We formulate a special case of α-maxmin expected utility theory in a Savage setting, show that every decision maker perceives multiple subjective sources, and that source-utilities are rank dependent expected utility. A power series identifies each source, measures source-uncertainty, and determines the agent's source-specific risk attitude. Subjective sources relate Ellsberg-paradox behavior to source preference and to Allais-paradox behavior.

Original languageEnglish (US)
Pages (from-to)465-488
Number of pages24
JournalJournal of Economic Theory
Volume159
DOIs
StatePublished - 2015

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Allais paradox
  • Ambiguity
  • Source preference

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