Dynamic consistent alpha-maxim expected utility

Arbeitspapier

We establish a class of fully nonlinear conditional expectations. Similarly to the usage of linear expectations when a probabilistic description of uncertainty is present, we observe analogue quantitative and qualitative properties. The type of nonlinearity captures the agents sentiments of optimism and pessimism in an ambiguous environment. We then introduce an expected utility under a nonlinear expectation, and show monotonicity and continuity of utility. Risk aversion is characterized, and the properties of the certainty equivalent are discussed. Finally, we derive an Arrow-Pratt approximation of the static certainty equivalent and investigate the dynamic version via recursive equations.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Center for Mathematical Economics Working Papers ; No. 535

Classification and Topics

• Classification: Wirtschaft ; Mathematical Methods; Programming Models; Mathematical and Simulation Modeling: General ; Criteria for Decision-Making under Risk and Uncertainty ; Micro-Based Behavioral Economics: General‡
• Subject: nonlinear expectation ; Knightian Uncertainty ; time consistency ; risk aversion ; certainty equivalent ; optimism and pessimism

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beißner, Patrick ; Lin, Qian
• Event: Veröffentlichung
• (who): Bielefeld University, Center for Mathematical Economics (IMW)
• (where): Bielefeld
• (when): 2015

Further information

• DOI: doi:10.2139/ssrn.2562354
• Handle: http://hdl.handle.net/10419/111070
• URN: urn:nbn:de:0070-pub-27189099
• Last update: 10.03.2025, 11:42 AM CET