Theoretical Economics, Volume 20, Number 1 (January 2025)

Theoretical Economics 20 (2025), 1–25


Expected balanced uncertain utility

Simon Grant, Berend Roorda, Jingni Yang

Abstract


We introduce and analyze expected balanced uncertain utility (EBUU) theory. A prior and a balanced outcome-set utility characterize an EBUU decision maker. Conditional on a reference or ``balancing value'', the latter assigns a utility to each outcome-set. The decision maker associates with each act, its envelope, the minimal measurable mapping from states to outcome-sets that contains the act. She then (implicitly) ranks an act according to the balancing value at which the expected balanced utility of its associated envelope is zero. As a consequence her risk preferences need only exhibit betweenness allowing or behavior that can accommodate Allais-type paradoxes.

Keywords: Uncertainty, ambiguity, betweenness

JEL classification: D80, D81

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