Worst- and Best-Case Expected Utility and Ordinal Metautility

19 Pages Posted: 8 May 2019 Last revised: 4 May 2020

See all articles by Simon Grant

Simon Grant

Rice University - Department of Economics; Australian National University

Patricia Rich

University of Bayreuth

Jack Douglas Stecher

University of Alberta - Department of Accounting, Operations & Information Systems

Date Written: April 9, 2019

Abstract

We provide a theory of decision under ambiguity in which the worst-case and best-case expected utility representations are sufficient statistics for a decision maker’s preferences; we refer to the new utility functions as meta-utilities. Our approach, which generalizes many of the commonly used models, provides an ordinal value of these worst- and best-case expected utilities, mirroring the familiar ordinal utility functions over commodity baskets. Ambiguity attitude is simply the marginal rate of substitution in the meta-utility between worst-and best-case expected utilities.

Keywords: ambiguity, pessimism, optimism, expected utility

JEL Classification: D80, D81

Suggested Citation

Grant, Simon Harold and Rich, Patricia and Stecher, Jack Douglas, Worst- and Best-Case Expected Utility and Ordinal Metautility (April 9, 2019). Available at SSRN: https://ssrn.com/abstract=3369078 or http://dx.doi.org/10.2139/ssrn.3369078

Simon Harold Grant

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States
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Australian National University ( email )

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Canberra, Australian Capital Territory 0200
Australia
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61-2-6125-3051 (Fax)

Patricia Rich (Contact Author)

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Jack Douglas Stecher

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

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