Econometrica: May 2009, Volume 77, Issue 3

Vector Expected Utility and Attitudes Toward Variation

https://doi.org/10.3982/ECTA7564
p. 801-855

Marciano Siniscalchi

This paper proposes a model of decision under ambiguity deemed , or VEU. In this model, an uncertain prospect, or Savage act, is assessed according to (a) a , and (b) an that reflects the individual's perception of ambiguity and her attitudes toward it. The adjustment is itself a function of the act's exposure to distinct sources of ambiguity, as well as its variability. The key elements of the VEU model are a baseline probability and a collection of random variables, or , which represent acts exposed to distinct ambiguity sources and also reflect complementarities among ambiguous events. The adjustment to the baseline expected‐utility evaluation of an act is a function of the covariance of its utility profile with each adjustment factor, which reflects exposure to the corresponding ambiguity source.
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Supplemental Material

Supplement to "Vector Expected Utility and Attitudes toward Variation"

This document contains omitted proofs, formal statements and proofs of results characterizing Complementary Independence for other decision models.  It also contains Probabilistic Sophistication for VEU preferences and the analysis of the consumption-savings example of Sec. 4.5

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