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On Microfoundations of Yaari's Dual Theory of Choice

Author

Listed:
  • Sergei Guriev

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

We show that Yaari's dual theory of choice under risk may be derived as an indirect utility when a risk-neutral agent faces financial imperfections. We consider an agent that maximizes expected discounted cash flows under a bid-ask spread in the credit market. It turns out that the agent evaluates lotteries as if she were maximizing Yaari's dual utility function. We also generalize the dual theory of choice for unbounded lotteries.

Suggested Citation

  • Sergei Guriev, 2001. "On Microfoundations of Yaari's Dual Theory of Choice," Post-Print hal-03595500, HAL.
    • Handle: RePEc:hal:journl:hal-03595500
    DOI: 10.1023/A:1014382530086
    as

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