Choice under uncertainty with the best and worst in mind: Neo-additive capacities |
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Authors: | Alain Chateauneuf Simon Grant |
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Affiliation: | a CES, Université Paris I, France b Department of Economics, University of Heidelberg, Grabengasse 14, D-69117 Heidelberg, Germany c Department of Economics, Rice University, USA |
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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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Keywords: | D81 |
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