State Dependent Utility and Ambiguity
A talk in the Mathematical finance / Insurance mathematics series by
Lasse Mononen from University of Zurich
| Abstract: | ls of choice under uncertainty study choice behavior when outcomes depend on the realized state of the world. The typical assumption is that utilities of outcomes do not depend on the realized state and are state independent. Without this simplifying assumption, it is difficult to separately identify utilities and beliefs. This paper provides novel general foundations for models with state dependent utilities: once we depart from expected utility, it is often possible to uniquely identify utilities and beliefs. Specifically, we show that with general models of non-expected utility under ambiguity we have complete identification of utilities and probabilities under full-dimensional uncertainty. Additionally, we offer novel axiomatizations for state dependent dual-self variational expected utility and dual-self expected utility. Finally, we consider applications of this identification to social choice theory for the identification of the fairness of a society and to intertemporal choice for the identification of evolving tastes. Within the CRC this talk is associated to the project(s): C5 |