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A Non‐Bayesian Theory of State‐Dependent Utility
Author(s) -
Hill Brian
Publication year - 2019
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta15916
Subject(s) - ambiguity , expected utility hypothesis , representation (politics) , subjective expected utility , ambiguity aversion , bayesian probability , state (computer science) , mathematical economics , comparative statics , computer science , decision theory , mathematics , artificial intelligence , econometrics , economics , algorithm , microeconomics , politics , political science , law , programming language
Many decision situations involve two or more of the following divergences from subjective expected utility: imprecision of beliefs (or ambiguity), imprecision of tastes (or multi‐utility), and state dependence of utility. This paper proposes and characterizes a model of uncertainty averse preferences that can simultaneously incorporate all three phenomena. The representation supports a principled separation of (imprecise) beliefs and (potentially state‐dependent, imprecise) tastes. Moreover, the representation permits comparative statics separating the roles of beliefs and tastes, and is modular: it easily delivers special cases involving various combinations of the phenomena, as well as state‐dependent multi‐utility generalizations covering popular ambiguity models.