Abstract
In a seminal paper, Schmeidler (1989) proposed a nonadditive expected utility theory, called Choquet expected utility (CEU). For decision under uncertainty CEU provides a greater flexibility in predicting choices than Savage’s subjective expected utility (SEU). The key feature of Schmeidler’s theory is that the probability of a union of two disjoint events is not required to be the sum of the individual event probabilities. Schmeidler’s theory and its subsequent developments (e.g., see Gilboa, 1987, Wakker, 1989, Chapter VI) do not, however, make a distinction between gains and losses with respect to the status quo. These theories typically assume that the consequence of a given decision alternative is described by the final wealth position.
The support for this research was provided in part by the Decision, Risk, and Management Science branch of the National Science Foundation.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Curley, S.P. & J.F. Yates (1985), ‘The Center and Range of the Probability Interval as Factors Affecting Ambiguity Preferences,’ Organizational Behavior and Human Decision Processes 36, 273–287.
Einhorn, H.J. & R.M. Hogarth (1985), ‘Ambiguity and Uncertainty in Probabilistic Inference,’ Psychological Review 93, 433–461.
Ellsberg, D. (1961), ‘Risk, Ambiguity and the Savage Axioms,’ Quarterly Journal of Economics 75, 643–669.
Gilboa, I. (1987), ‘Expected Utility with Purely Subjective Non-Additive Probabilities,’ Journal of Mathematical Economics 16, 65–88.
Kahn, B.E. & R.K. Sarin (1988), ‘Modeling Ambiguity in Decisions under Uncertainty,’ Journal of Consumer Research 15, 265–272.
Kahneman, D. & A. Tversky (1979), ‘Prospect Theory: An Analysis of Decision under Risk,’ Econometrica 47, 263–291.
Luce, R.D. & P.C. Fishburn (1991), ‘Rank-and Sign-Dependent Linear Utility Models for Finite First-Order Gambles,’ Journal of Risk and Uncertainty 4, 29–59.
Quiggin, J. (1982), ‘A Theory of Anticipated Utility,’ Journal of Economic Behaviour and Organization3, 323–343.
Sarin, R.K. & P.P. Wakker (1992a), ‘A simple Axiomatization of Nonadditive Expected Utility,’ Econometrica 60, 1255–1272.
Sarin, R.K. & P.P. Wakker (1992b), ‘A General Theory for Quantifying Beliefs,’ Econometrica, forthcoming.
Schmeidler, D. (1989), ‘subjective Probability and Expected Utility without Additivity,’ Econometrica 57, 571–587.
Starmer, C., & R. Sugden (1989), ‘Violations of the Independence Axiom in Common Ratio Problems: An Experimental Test of Some Competing Hypotheses,’ Annals of Operations Research 19, 79–101.
Tversky, A. & D. Kahneman (1992), ‘Advances in Prospect Theory: Cumulative Representation of Uncertainty,’ Journal of Risk and Uncertainty 5, 297–323.
Wakker, P.P. (1989), ’Additive Representations of Preferences, A New Foundation of Decision Analysis.’ Kluwer Academic Publishers, Dordrecht.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1994 Springer Science+Business Media Dordrecht
About this chapter
Cite this chapter
Sarin, R., Wakker, P. (1994). Gains and Losses in Nonadditive Expected Utility. In: Munier, B., Machina, M.J. (eds) Models and Experiments in Risk and Rationality. Theory and Decision Library, vol 29. Springer, Dordrecht. https://doi.org/10.1007/978-94-017-2298-8_9
Download citation
DOI: https://doi.org/10.1007/978-94-017-2298-8_9
Publisher Name: Springer, Dordrecht
Print ISBN: 978-90-481-4447-1
Online ISBN: 978-94-017-2298-8
eBook Packages: Springer Book Archive