State Preference Approach

Abstract

Under certainty, with commodities i ∈ I, individual preferences are defined over commodity bundles c = (c_i : i ∈ I), which are the objects of choice of individuals. Under uncertainty, production possibilities and individual and aggregate endowments, for instance, may vary with the realization of random states of nature s ∈ S. It is then necessary to define individual preferences over plans $\overrightarrow{c}=\left(c(s);s\in S\right)$ which assign to each state of nature a commodity bundle.