Bayesian decision theory with action-dependent probabilities and risk attitudes
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This paper extends the work of Karni (Econ Theory 48:125–146, 2011) to allow for the possibility that decision makers’ effect-dependent risk attitudes are also affected by their actions. This extension is essential for modeling decision situations in which actions have a monetary dimension that creates interaction between actions and wealth.
KeywordsBayesian decision theory Subjective probabilities Prior distributions Beliefs Constant utility bets
JEL ClassificationD80 D81 D82
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