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Choice under uncertainty with the best and worst in mind: Neo-additive capacities

Authors
Journal
Journal of Economic Theory
0022-0531
Publisher
Elsevier
Publication Date
Volume
137
Issue
1
Identifiers
DOI: 10.1016/j.jet.2007.01.017
Keywords
  • Subjective Mixtures
  • Comonotonic Preferences
  • Choquet Expected Utility
  • Optimism
  • Pessimism
Disciplines
  • Economics

Abstract

Abstract We develop the simplest generalization of subjective expected utility that can accommodate both optimistic and pessimistic attitudes towards uncertainty—Choquet expected utility with non-extreme-outcome-additive ( neo-additive) capacities. A neo-additive capacity can be expressed as the convex combination of a probability and a special capacity, we refer to as a Hurwicz capacity, that only distinguishes between whether an event is impossible, possible or certain. We show that neo-additive capacities can be readily applied in economic problems, and we provide an axiomatization in a framework of purely subjective uncertainty.

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