Balanced Outcome-Set Expected Utility

Simon Grant*, Berend Roorda, Jingni Yang

*Corresponding author for this work

Research output: Working paper

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Abstract

We introduce and analyze the Balanced Outcome-Set Expected Utility (BOSEU) model for decision-making under uncertainty.
A prior and a balanced outcome-set utility characterize a BOSEU decision-maker. Her prior is defined over those events she perceives as unambiguous and hence willing to quantify with a precise probability. Using her prior, the decision-maker transforms each act into an outcome-set act that assigns a
set of outcomes to each state. Her balanced outcome-set utility assigns a utility to each outcome-set relative to a ``balance'' point. She implicitly ranks each act according to the balance point
required to equate the balanced outcome-set expected utility of the associated outcome-set act with zero. As a consequence her
risk preferences need only exhibit betweenness allowing for behavior that can accommodate Allais-type paradoxes.
Original languageEnglish
Publication statusPublished - 7 Jul 2023

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