TY - JOUR

T1 - Mean-dispersion preferences and constant absolute uncertainty aversion

AU - Grant, Simon

AU - Polak, Ben

PY - 2013/7

Y1 - 2013/7

N2 - 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.

AB - 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.

KW - Ambiguity aversion

KW - Dispersion

KW - Probabilistic sophistication

KW - Translation invariance

KW - Uncertainty

UR - http://www.scopus.com/inward/record.url?scp=84878638849&partnerID=8YFLogxK

U2 - 10.1016/j.jet.2012.11.003

DO - 10.1016/j.jet.2012.11.003

M3 - Article

SN - 0022-0531

VL - 148

SP - 1361

EP - 1398

JO - Journal of Economic Theory

JF - Journal of Economic Theory

IS - 4

ER -