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Expected Utility without Parsimony

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Abstract
This paper seeks to interpret observable behavior and departures from Savage's model of Subjective Expected Utility (SEU) in terms of knowledge and belief. It is shown that observable behavior displays sensitivity to ambiguity if and only if knowledge and belief disagree. In addition, such an epistemic interpretation of ambiguity leads to dynamically consistent extensions of non-SEU preferences

Suggested Citation

  • Antoine Billot & Vassili Vergopoulos, 2014. "Expected Utility without Parsimony," Documents de travail du Centre d'Economie de la Sorbonne 14048, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:14048
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2014/14048.pdf
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    References listed on IDEAS

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    1. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February.
    2. Machina, Mark J, 1989. "Dynamic Consistency and Non-expected Utility Models of Choice under Uncertainty," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1622-1668, December.
    3. repec:dau:papers:123456789/7323 is not listed on IDEAS
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    5. Nehring, Klaus, 1999. "Capacities and probabilistic beliefs: a precarious coexistence," Mathematical Social Sciences, Elsevier, vol. 38(2), pages 197-213, September.
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    7. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    8. Morris, Stephen, 1996. "The Logic of Belief and Belief Change: A Decision Theoretic Approach," Journal of Economic Theory, Elsevier, vol. 69(1), pages 1-23, April.
    9. Adam Dominiak & Jean-Philippe Lefort, 2011. "Unambiguous events and dynamic Choquet preferences," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(3), pages 401-425, April.
    10. Dekel, Eddie & Lipman, Barton L & Rustichini, Aldo, 2001. "Representing Preferences with a Unique Subjective State Space," Econometrica, Econometric Society, vol. 69(4), pages 891-934, July.
    11. Al-Najjar, Nabil I. & Weinstein, Jonathan, 2009. "Rejoinder: The “Ambiguity Aversion Literature: A Critical Assessment”," Economics and Philosophy, Cambridge University Press, vol. 25(3), pages 357-369, November.
    12. Robert J. Aumann, 1999. "Interactive epistemology I: Knowledge," International Journal of Game Theory, Springer;Game Theory Society, vol. 28(3), pages 263-300.
    13. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    14. Barton L. Lipman, 1999. "Decision Theory without Logical Omniscience: Toward an Axiomatic Framework for Bounded Rationality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(2), pages 339-361.
    15. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    16. Al-Najjar, Nabil I. & Weinstein, Jonathan, 2009. "The Ambiguity Aversion Literature: A Critical Assessment," Economics and Philosophy, Cambridge University Press, vol. 25(3), pages 249-284, November.
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    Cited by:

    1. Minardi, Stefania & Savochkin, Andrei, 2019. "Subjective contingencies and limited Bayesian updating," Journal of Economic Theory, Elsevier, vol. 183(C), pages 1-45.
    2. Calford, Evan, 2016. "Mixed Strategies in Games with Ambiguity Averse Agents," MPRA Paper 74909, University Library of Munich, Germany.
    3. Blume, Lawrence & Easley, David & Halpern, Joseph Y., 2021. "Constructive decision theory," Journal of Economic Theory, Elsevier, vol. 196(C).
    4. Grant Simon & Guerdjikova Ani & Quiggin John, 2021. "Ambiguity and Awareness: A Coherent Multiple Priors Model," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 21(2), pages 571-612, June.
    5. Adam Dominiak & Ani Guerdjikova, 2021. "Pessimism and optimism towards new discoveries," Theory and Decision, Springer, vol. 90(3), pages 321-370, May.

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    More about this item

    Keywords

    Ambiguity; state of the world; knowledge; dynamic consistency;
    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
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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