Expected balanced uncertain utility

Abstract

We introduce and analyze expected balanced uncertain utility (EBUU) theory. A prior and a balanced outcome-set utility characterize an EBUU decision maker. Conditional on a reference or “balancing value,” the latter assigns a utility to each outcome-set. The decision maker associates with each act, its envelope, the minimal measurable mapping from states to outcome-sets that contains the act. She then (implicitly) ranks an act according to the balancing value at which the expected balanced utility of its associated envelope is zero. As a consequence, her risk preferences need only exhibit betweenness allowing for behavior that can accommodate Allais-type paradoxes. Show more