Theory and Decision

, Volume 81, Issue 4, pp 467–478 | Cite as

An expected utility theory for state-dependent preferences

Article

Abstract

This note is a generalization and improved interpretation of the main result of Karni and Schmeidler (An Expected utility theory for state-dependent preferences. Working paper no. 48-80 of the Foerder Institute for Economic Research, Faculty of Social Sciences, Tel Aviv University, 1980). A decision-maker is supposed to possess a preference relation on acts and another preference relation on state-prize lotteries, both of which are assumed to satisfy the von Neumann–Morgenstern axioms. In addition, the two preference relations restricted to a state of nature are assumed to agree. We show that these axioms are necessary and sufficient for the existence of subjective expected utility over acts with state-dependent utility functions and a subjective probability measure. This subjective probability measure is unique when conditioned on the set of states of nature in which not all the prizes are equally desirable.

Keywords

Subjective expected utility State-dependent preferences  State-dependent utility Subjective probabilities 

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Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  1. 1.Johns Hopkins UniversityBaltimoreUSA
  2. 2.University of WarwickCoventryUK
  3. 3.Tel Aviv UniversityTel AvivIsrael

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