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A Non-Bayesian Theory of State-Dependent Utility

Author

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  • Hill, Brian

    (HEC Paris - Economics & Decision Sciences; CNRS)

Abstract

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. Examples include multi-attribute decisions under uncertainty, such as some climate decisions, where trade-offs across attributes may be state dependent. This paper proposes and characterises 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, and we pinpoint the axiom that ensures such a separation. Moreover, the representation supports comparative statics of both beliefs and tastes, and is modular: it easily delivers special cases involving various combinations of the phenomena, as well as state-dependent multi-utility generalisations of popular ambiguity models.

Suggested Citation

  • Hill, Brian, 2018. "A Non-Bayesian Theory of State-Dependent Utility," HEC Research Papers Series 1297, HEC Paris.
    • Handle: RePEc:ebg:heccah:1297
    DOI: 10.2139/ssrn.3177028
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    Keywords

    state-dependent utility; uncertainty aversion; multiple priors; ambiguity; imprecise tastes; multi-utility;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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