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Social preferences and expected utility

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  • Mehmet S. Ismail
  • Ronald Peeters

Abstract

It is well known that ex ante social preferences and expected utility are not always compatible. In this note, we introduce a novel framework that naturally separates social preferences from selfish preferences to answer the following question: What specific forms of social preferences can be accommodated within the expected utility paradigm? In a departure from existing frameworks, our framework reveals that ex ante social preferences are not inherently in conflict with expected utility in games, provided a decision-maker's aversion to randomization in selfish utility "counterbalances" her social preference for randomization. We also show that when a player's preferences in both the game (against another player) and the associated decision problem (against Nature) conform to expected utility axioms, the permissible range of social preferences becomes notably restricted. Only under this condition do we reaffirm the existing literature's key insight regarding the incompatibility of ex ante inequality aversion with expected utility.

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  • Mehmet S. Ismail & Ronald Peeters, 2023. "Social preferences and expected utility," Papers 2312.06048, arXiv.org.
    • Handle: RePEc:arx:papers:2312.06048
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    References listed on IDEAS

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