Mean-dispersion preferences and constant absolute uncertainty aversion

Simon Grant, Ben Polak*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

33 Citations (Scopus)


We axiomatize, in an Anscombe-Aumann framework, the class of preferences that admit a representation of the form . V(f)=Ρ(d), where . f is the mean utility of the act . f with respect to a given probability, . d is the vector of state-by-state utility deviations from the mean, and . Ρ(d) is a measure of (aversion to) dispersion that corresponds to an uncertainty premium. The key feature of these . mean-dispersion preferences is that they exhibit constant absolute uncertainty aversion. This class includes many well-known models of preferences from the literature on ambiguity. We show what properties of the dispersion function . Ρ(.) correspond to known models, to probabilistic sophistication, and to some new notions of uncertainty aversion.

Original languageEnglish
Pages (from-to)1361-1398
Number of pages38
JournalJournal of Economic Theory
Issue number4
Publication statusPublished - Jul 2013
Externally publishedYes

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