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Bayesian decision theory with action-dependent probabilities and risk attitudes

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  • Edi Karni

Abstract

This paper extends the work of Karni (Econ Theory 48:125–146, 2011 ) to allow for the possibility that decision makers’ effect-dependent risk attitudes are also affected by their actions. This extension is essential for modeling decision situations in which actions have a monetary dimension that creates interaction between actions and wealth. Copyright Springer-Verlag 2013

Suggested Citation

  • Edi Karni, 2013. "Bayesian decision theory with action-dependent probabilities and risk attitudes," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(2), pages 335-356, June.
    • Handle: RePEc:spr:joecth:v:53:y:2013:i:2:p:335-356
    DOI: 10.1007/s00199-012-0692-4
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    References listed on IDEAS

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    1. Machina, Mark J., 1984. "Temporal risk and the nature of induced preferences," Journal of Economic Theory, Elsevier, vol. 33(2), pages 199-231, August.
    2. James A. Mirrlees, 1976. "The Optimal Structure of Incentives and Authority Within an Organization," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 105-131, Spring.
    3. Nau, Robert F, 1995. "Coherent Decision Analysis with Inseparable Probabilities and Utilities," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 71-91, January.
    4. Robert Nau, 2011. "Risk, ambiguity, and state-preference theory," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 437-467, October.
    5. Wakker, Peter, 1987. "Subjective probabilities for state dependent continuous utility," Mathematical Social Sciences, Elsevier, vol. 14(3), pages 289-298, December.
    6. Edi Karni, 2011. "Subjective Probabilities on a State Space," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 172-185, November.
    7. Kreps, David M & Porteus, Evan L, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Econometrica, Econometric Society, vol. 46(1), pages 185-200, January.
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    Citations

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    Cited by:

    1. Jacques H. Drèze, 2018. "Subjective Expected Utility with State-Dependent but Action/Observation-Independent Preferences," Risks, MDPI, vol. 6(2), pages 1-9, March.

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    More about this item

    Keywords

    Bayesian decision theory; Subjective probabilities; Prior distributions; Beliefs; Constant utility bets; D80; D81; D82;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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