Uncertainty Aversion, Multi Utility Representations and State Independence of Utility
42 Pages Posted: 27 Jan 2015 Last revised: 9 Feb 2015
Date Written: January 22, 2015
This paper proposes and characterises a model of uncertainty averse preferences that can simultaneously accommodate three divergences from subjective expected utility: imprecision of beliefs (or ambiguity), imprecision of tastes (or multi utility), and state dependence of utility. Moreover, it characterises, in this context, a notion of state independence of utility borrowed from the literature on incomplete preferences. This notion is then shown to be basically inconsistent with the standard state-independence axiom, monotonicity, whenever tastes are imprecise. A new notion of state independence in the context of imprecise tastes, which is characterised by monotonicity, is proposed.
Keywords: State independence of utility, imprecise tastes, uncertainty aversion, multi utility, multiple priors, state-dependent utility.
JEL Classification: D81
Suggested Citation: Suggested Citation