Subjective Expected Utility Theory with "Small Worlds"

Publikation: Working paperForskning

Dokumenter

  • DP 09-26

    Forlagets udgivne version, 482 KB, PDF-dokument

  • Jacob Gyntelberg
  • Frank Hansen
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.
OriginalsprogEngelsk
UdgiverDepartment of Economics, University of Copenhagen
Antal sider22
StatusUdgivet - 2009

Bibliografisk note

JEL classification: D8, G12

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