Arbeitspapier

Dynamic consistent alpha-maxim expected utility

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.

Sprache
Englisch

Erschienen in
Series: Center for Mathematical Economics Working Papers ; No. 535

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

Ereignis
Geistige Schöpfung
(wer)
Beißner, Patrick
Lin, Qian
Ereignis
Veröffentlichung
(wer)
Bielefeld University, Center for Mathematical Economics (IMW)
(wo)
Bielefeld
(wann)
2015

DOI
doi:10.2139/ssrn.2562354
Handle
URN
urn:nbn:de:0070-pub-27189099
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Beißner, Patrick
  • Lin, Qian
  • Bielefeld University, Center for Mathematical Economics (IMW)

Entstanden

  • 2015

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