Uncertainty Aversion, Multi Utility Representations and State Independence of Utility

42 Pages Posted: 27 Jan 2015 Last revised: 9 Feb 2015

See all articles by Brian Hill

Brian Hill

HEC Paris - Economics & Decision Sciences; CNRS

Date Written: January 22, 2015

Abstract

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

Hill, Brian, Uncertainty Aversion, Multi Utility Representations and State Independence of Utility (January 22, 2015). HEC Paris Research Paper No. ECO/SCD-2015-1079. Available at SSRN: https://ssrn.com/abstract=2555504 or http://dx.doi.org/10.2139/ssrn.2555504

Brian Hill (Contact Author)

HEC Paris - Economics & Decision Sciences ( email )

Paris
France

CNRS ( email )

3, rue Michel-Ange
Paris, 75794
France

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