Econometrica: Jul 2015, Volume 83, Issue 4

Savage in the Market
p. 1467-1495

F. Echenique and K. Saito

We develop a behavioral axiomatic characterization of subjective expected utility (SEU) under risk aversion. Given is an individual agent's behavior in the market: assume a finite collection of asset purchases with corresponding prices. We show that such behavior satisfies a “revealed preference axiom” if and only if there exists a SEU model (a subjective probability over states and a concave utility function over money) that accounts for the given asset purchases.

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Supplemental Material

Supplement to “Savage in the Market”

The supplement contains extensions to the results in the paper, and some proofs and discussions that were omitted from the paper. We illustrate how alternative theories to risk-averse SEU give rise to data that violate our revealed preference axiom.  We include some results on the 2X2 case and probabilistic sophistication.  Finally, we discuss objective expected utitlity and the comparison to Savage's axiomatization.

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