Fairness, Risk Preferences and Independence: Impossibility Theorems

15 Pages Posted: 9 Mar 2011

See all articles by Drew Fudenberg

Drew Fudenberg

Massachusetts Institute of Technology (MIT)

David K. Levine

Washington University in St. Louis - Department of Economics; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Date Written: March 9, 2011

Abstract

The most widely used economic models of social preferences are specified only for certain outcomes. There are two obvious methods of extending them to lotteries. If we do so by expected utility theory, so that the independence axiom is satisfied, our results imply that the resulting preferences do not exhibit ex ante fairness. If we do so by replacing certain outcomes with their expected utilities for each individual, so that individual risk preferences are preserved, then ex ante fairness may be preserved, but neither the independence axiom nor ex post fairness is satisfied.

Suggested Citation

Fudenberg, Drew and Levine, David K., Fairness, Risk Preferences and Independence: Impossibility Theorems (March 9, 2011). Available at SSRN: https://ssrn.com/abstract=1782001 or http://dx.doi.org/10.2139/ssrn.1782001

Drew Fudenberg (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

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David K. Levine

Washington University in St. Louis - Department of Economics ( email )

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HOME PAGE: http://www.dklevine.com

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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Florence, Florence 50014
Italy

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