State Preference Approach

Abstract

Under certainty, with commodities i ∈ I, individual preferences are defined over commodity bundles c = (c _i : i ∈ I), which are the objects of choice of individuals. Under uncertainty, production possibilities and individual and aggregate endowments, for instance, may vary with the realization of random states of nature s ∈ S . It is then necessary to define individual preferences over plans $\overrightarrow{c}=\left(c(s);s\in S\right)$ which assign to each state of nature a commodity bundle.

This chapter was originally published in The New Palgrave: A Dictionary of Economics, 1st edition, 1987. Edited by John Eatwell, Murray Milgate and Peter Newman