Subjective Expected Utility Theory with "Small Worlds"
Publikation: Working paper › Forskning
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Subjective Expected Utility Theory with "Small Worlds". / Gyntelberg, Jacob; Hansen, Frank.
Department of Economics, University of Copenhagen, 2009.Publikation: Working paper › Forskning
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TY - UNPB
T1 - Subjective Expected Utility Theory with "Small Worlds"
AU - Gyntelberg, Jacob
AU - Hansen, Frank
N1 - JEL classification: D8, G12
PY - 2009
Y1 - 2009
N2 - We model the notion of a "small world" as a context dependent state space embedded into the "grand world". For each situation the decision maker creates a "small world" reflecting the events perceived to be relevant for the act under consideration. The "grand world" is represented by an event space which is a more general construction than a state space. We retain preference axioms similar in spirit to the Savage axioms and obtain, without abandoning linearity of expectations, a subjective expected utility theory which allows for an intuitive distinction between risk and uncertainty. We also obtain separation of subjective probability and utility as in the state space models.
AB - We model the notion of a "small world" as a context dependent state space embedded into the "grand world". For each situation the decision maker creates a "small world" reflecting the events perceived to be relevant for the act under consideration. The "grand world" is represented by an event space which is a more general construction than a state space. We retain preference axioms similar in spirit to the Savage axioms and obtain, without abandoning linearity of expectations, a subjective expected utility theory which allows for an intuitive distinction between risk and uncertainty. We also obtain separation of subjective probability and utility as in the state space models.
KW - Faculty of Social Sciences
KW - decision making under uncertainty
KW - uncertainty aversion
KW - Ellsberg paradox
M3 - Working paper
BT - Subjective Expected Utility Theory with "Small Worlds"
PB - Department of Economics, University of Copenhagen
ER -
ID: 16276798