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A Non-Bayesian Theory of State-Dependent Utility

Abstract

Many decision situations involve two or more of the following divergences from subjective expected utility: imprecision of beliefs (or ambiguity), imprecision of tastes (or multi-utility), and state dependence of utility. Examples include multi-attribute decisions under uncertainty, such as some climate decisions, where trade-offs across attributes may be state dependent. This paper proposes and characterises a model of uncertainty averse preferences that can simultaneously incorporate all three phenomena. The representation supports a principled separation of (imprecise) beliefs and (potentially state-dependent, imprecise) tastes, and we pinpoint the axiom that ensures such a separation. Moreover, the representation supports comparative statics of both beliefs and tastes, and is modular: it easily delivers special cases involving various combinations of the phenomena, as well as state-dependent multi-utility generalisations of popular ambiguity models.
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hal-01933826 , version 1 (24-11-2018)

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Brian Hill. A Non-Bayesian Theory of State-Dependent Utility. 2017. ⟨hal-01933826⟩
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