Characterizing Uncertainty Aversion Through Preference for Mixtures

Uncertainty aversion is often modelled as (strict) quasi-concavity of preferences over uncertain acts. A theory of uncertainty aversion may be characterized by the pairs of acts for which strict preference for a mixture between them is permitted. This paper provides such a characterization for two leading representations of uncertainty averse preferences; those of Schmeidler [20] (Choquet expected utility) and of Gilboa and Schmeidler [13] (maxmin expected utility with a non-unique prior). This characterization clarifies the relation between the two theories.

The Value of a Statistical Life under Ambiguity Aversion

We show that ambiguity aversion increases the value of a statistical life as soon as the marginal utility of wealth is higher if alive than dead. The intuition is that ambiguity aversion has a similar effect as an increase in the perceived baseline mortality risk, and thus operates as the “dead anyway” effect. We suggest, however, that ambiguity aversion should usually have a modest effect on the prevention of ambiguous mortality risks within benefit-cost analysis, and can hardly justify the substantial “ambiguity premium” apparently embodied in environmental policy-making.ambiguity, value-of-a-statistical-life, uncertainty, risk-aversion, willingness-to-pay, benefit-cost analysis, environmental risk, health policy

The Ignorant Observer

Most prominent models of economic justice (and especially those proposed by Harsanyi and Rawls) are based on the assumption that impartiality is required for making moral decisions. However, although Harsanyi and Rawls agree on that, and furthermore agree on the fact that impartiality can be obtained under appropriate conditions of ignorance, they strongly disagree on the consequences of these assumptions. According to Harsanyi, they provide a justification for the utilitarian doctrine, whereas Rawls considers that they imply egalitarianism. We propose here an extension of Harsanyi's Impartial Observer Theorem, that is based on the representation of ignorance as the set of all possible probability distributions. We obtain a characterization of the observer's preferences that, under our most restrictive conditions, is a linear combination of Harsanyi's and Rawls' criteria. Furthermore, this representation is ethically meaningful, in the sense that individuals' utilities are cardinally measurable and unit comparable. This allows us to conclude that the impartiality requirement cannot be used to decide between Rawls' and Harsanyi's positions. Finally, we defend the view that a (strict) combination of Harsanyi's and Rawls' criteria provides a reasonable rule for social decisions.Impartiality, justice, decision under ignorance.

The ignorant observer

We propose an extension of Harsanyi's Impartial Observer Theorem based on the representation of ignorance as the set of all possible probability distributions over individuals. We obtain a characterization of the observer's preferences that, under our most restrictive conditions, is a convex combination of Harsanyi's utilitarian and Rawls' egalitarian criteria. This representation is ethically meaningful, in the sense that individuals' utilities are cardinally measurable and fully comparable. This allows us to conclude that the impartiality requirement cannot be used to decide between Rawls' and Harsanyi's positions.Impartiality, Justice, Utilitarianism, Egalitarianism, Decision under ignorance.

Strategic behavior of non-expected utility players in games with payoff uncertainty

This paper investigates whether the strategic behavior of expected utility players differs from that of non-expected utility players in the context of incomplete information games where players can choose mixed strategies. Two conditions are identified where uncertainty-averse non-expected utility players behave differently from expected utility players. These conditions concern the use of mixed strategies and the response to it. It is shown that, if and only if these conditions fail, nonexpected utility players behave as if they were expected utility players. The paper provides conditions, in terms of the payoff structure of a game, which are necessary and sufficient for behavioral differences between expected and non-expected utility players. In this context, games are analyzed that are especially relevant for the design of experiments

Decision-Making in the Context of Imprecise Probabilistic Beliefs

Coherent imprecise probabilistic beliefs are modelled as incomplete comparative likelihood relations admitting a multiple-prior representation. Under a structural assumption of Equidivisibility, we provide an axiomatization of such relations and show uniqueness of the representation. In the second part of the paper, we formulate a behaviorally general axiom relating preferences and probabilistic beliefs which implies that preferences over unambiguous acts are probabilistically sophisticated and which entails representability of preferences over Savage acts in an Anscombe-Aumann-style framework. The motivation for an explicit and separate axiomatization of beliefs for the study of decision-making under ambiguity is discussed in some detail.

The Ignorant Observer

URL des Cahiers : https://halshs.archives-ouvertes.fr/CAHIERS-MSE Voir aussi l'article basé sur ce document de travail paru dans "Social Choice and Welfare," Springer Verlag, 2008, 31 (2), pp.193-232Cahiers de la Maison des Sciences Economiques 2006.41 - ISSN 1624-0340Most prominent models of economic justice (and especially those proposed by Harsanyi and Rawls) are based on the assumption that impartiality is required for making moral decisions. However, although Harsanyi and Rawls agree on that, and furthermore agree on the fact that impartiality can be obtained under appropriate conditions of ignorance, they strongly disagree on the consequences of these assumptions. According to Harsanyi, they provide a justification for the utilitarian doctrine, whereas Rawls considers that they imply egalitarianism. We propose here an extension of Harsanyi's Impartial Observer Theorem, that is based on the representation of ignorance as the set of all possible probability distributions. We obtain a characterization of the observer's preferences that, under our most restrictive conditions, is a linear combination of Harsanyi's and Rawls' criteria. Furthermore, this representation is ethically meaningful, in the sense that individuals' utilities are cardinally measurable and unit comparable. This allows us to conclude that the impartiality requirement cannot be used to decide between Rawls' and Harsanyi's positions. Finally, we defend the view that a (strict) combination of Harsanyi's and Rawls' criteria provides a reasonable rule for social decisions.La plupart des théories économiques de la justice (notamment celles de Rawls et de Harsanyi) supposent que l'impartialité est un prérequis à toute décision d'ordre moral. Harsanyi et Rawls s'accordent de plus pour penser que l'impartialité peut être obtenue en plaçant le décideur dans des conditions d'ignorance appropriées. Cependant, ces deux auteurs déduisent de ces hypothèses des conclusions radicalement opposées : selon Harsanyi, elles conduisent à justifier l'utilitarisme, tandis que Rawls considère qu'elles justifient l'égalitarisme. Nous proposons dans cet article une extension du modèle de l'Observateur Impartial de Harsanyi qui repose sur l'idée selon laquelle l'ignorance correspond à une situation d'incertitude où toutes les distributions de probabilités sont a priori possibles. Nous obtenons une caractérisation des préférences de l'Observateur Impartial qui, sous nos hypothèses les plus restrictives, est une combinaison convexe des critères de Rawls et de Harsanyi. De plus, cette représentation a une signification éthique, dans la mesure où les utilités individuelles qu'elle agrège sont cardinalement mesurables et comparables. Ce résultat montre que l'exigence d'impartialité ne permet pas de trancher entre la position de Rawls et celle de Harsanyi. Enfin, nous défendons l'idée selon laquelle une (stricte) combinaison des critères utilitariste et égalitariste constitue une règle raisonnable pour les décisions sociales

Reassurance, regret and uncertainty: testing ex ante sources of (dis)utility and the welfarist account of social welfare

This paper considers an issue that has received little attention in the literature on health state evaluation: the relevance of the ex ante/ex post distinction in the assessment of quality of life. Ex post evaluations are based on experience of the health state being evaluated. Ex ante evaluations are made in anticipation of actually experiencing the health state, and are able to capture sources of pre-outcome (dis)utility such as anticipatory fear, anxiety, hope and dread. Which perspective should be used for economic evaluation? From the welfarist perspective it might be argued that ex ante evaluations should be used, because all sources of utility are relevant. From the extra-welfarist perspective it might argued that ex post evaluations should be used, because economic evaluation should be based solely on realised outcomes, at least in the context of a publicly financed health service. We sought the views of the Australian public on this issue. Using social willingness to pay questions, we asked respondents to select between alternative health services which either did, or did not, take pre-outcome sources of utility into account. Respondents were asked whether or not tax payers should pay a higher price for services that increased pre-outcome utility, and for which patients would be prepared to pay personally. They were also asked whether they would accept less spending on other health services for services that increased pre-outcome utility. The results indicated little support for welfarism. Of respondents, only 32.6 per cent would accept an increase in taxes for everyone to provide a service preferred by patients for its reassurance. Only 29.8 per cent would accept an increase in taxes to provide a service preferred by patients for its minimisation of potential for regret. Less decisively, 43.1 per cent would accept an increase in taxes to provide a service preferred by patients for its avoidance of uncertainty. On average, only 28.6 per cent of respondents would accept less spending on other health services to provide these services. The implications of these findings for economic evaluation studies are, first, that the Australian community does not believe that the purpose of its publicly financed health system should be to increase utility as defined by private willingness to pay and, second, that the gold standard for health-state measurement should elicit ex post evaluations from patients, not ex ante evaluations from the public