Abstract
We provide a methodology for eliciting utility midpoints from preferences, assuming that payoffs are consumption plans and that preferences satisfy a minimal form of additive separability. The methodology does not require any subjective or objective uncertainty. Thus, this construction of utility midpoints allows us to define mixtures of acts in a purely subjective fashion, without making any assumptions as to the decision maker’s reaction to the uncertainty that may be present. This approach makes it possible to provide a simple and fully subjective characterization of the second-order subjective expected utility model, allowing a clear distinction of such model from subjective expected utility.
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06 September 2022
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An earlier version of this paper was circulated with the title “Mixing without randomness”. We thank audiences at the Mathematics of Subjective Probability workshop (Milano, 2018), AMASES XLIII conference (Perugia, 2019), 20th SAET conference (Seoul, 2021), and Virginia Tech for helpful comments.
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Ghirardato, P., Pennesi, D. Randomizing without randomness. Econ Theory 75, 1009–1037 (2023). https://doi.org/10.1007/s00199-022-01435-3
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DOI: https://doi.org/10.1007/s00199-022-01435-3