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Subjective independence and concave expected utility

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  • Lehrer, Ehud
  • Teper, Roee

Abstract

When a potential hedge between alternatives does not reduce the exposure to uncertainty, we say that the decision maker considers these alternatives structurally similar. We offer a novel approach and suggest that structural similarity is subjective and should be different across decision makers. Structural similarity can be recovered through a property of the individual's preferences referred to as subjective codecomposable independence. This property characterizes a class of event-separable models and allows us to differentiate between perception of uncertainty and attitude towards it. In addition, our approach provides a behavioral foundation to Concave Expected Utility preferences.

Suggested Citation

  • Lehrer, Ehud & Teper, Roee, 2015. "Subjective independence and concave expected utility," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 33-53.
    • Handle: RePEc:eee:jetheo:v:158:y:2015:i:pa:p:33-53
    DOI: 10.1016/j.jet.2015.03.011
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. König-Kersting, Christian & Kops, Christopher & Trautmann, Stefan T., 2023. "A test of (weak) certainty independence," Journal of Economic Theory, Elsevier, vol. 209(C).
    2. Baillon, Aurélien & Bleichrodt, Han & Li, Chen & Wakker, Peter P., 2021. "Belief hedges: Measuring ambiguity for all events and all models," Journal of Economic Theory, Elsevier, vol. 198(C).
    3. Ehud Lehrer & Roee Teper, 2020. "Set-valued capacities: multi-agenda decision making," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(1), pages 233-248, February.
    4. Roee Teper, 2014. "Sandwich Games," Working Paper 5863, Department of Economics, University of Pittsburgh.
    5. Juan Sebastián Lleras & Evan Piermont & Richard Svoboda, 2019. "Asymmetric gain–loss reference dependence and attitudes toward uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(3), pages 669-699, October.
    6. Adam Dominiak & Jean-Philippe Lefort, 2021. "Ambiguity and Probabilistic Information," Management Science, INFORMS, vol. 67(7), pages 4310-4326, July.
    7. Abhinash Borah & Christopher Kops, 2016. "The Anscombe–Aumann representation and the independence axiom: a reconsideration," Theory and Decision, Springer, vol. 80(2), pages 211-226, February.
    8. Aurélien Baillon & Zhenxing Huang & Asli Selim & Peter P. Wakker, 2018. "Measuring Ambiguity Attitudes for All (Natural) Events," Econometrica, Econometric Society, vol. 86(5), pages 1839-1858, September.

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    More about this item

    Keywords

    Subjective independence; Codecomposable independence; Concave expected utility; Choquet expected utility; Uncertainty aversion; Machina paradox;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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