Expected Uncertain Utility Theory†

We introduce and analyze expected uncertain utility theory (EUU). A prior and an interval utility characterize an EUU decision maker. The decision maker transforms each uncertain prospect into an interval-valued prospect that assigns an interval of prizes to each state. She then ranks prospects according to their expected interval utilities. We define uncertainty aversion for EUU, use the EUU model to address the Ellsberg Paradox and other ambiguity evidence, and relate EUU theory to existing models. † This research was supported by grants from the National Science Foundation. We are grateful to Peter Wakker, Adriano Basso, Jay Lu and three anonymous referees for their comments and suggestions.