Testable Implications of Translation Invariance and Homotheticity: Variational, Maxmin, CARA and CRRA preferences

Online Appendix: Testable Implications of Translation Invariance and Homotheticity: Variational, Maxmin, Cara and Crra Preferences

New title: “Testing theories of financial decision making” Published in the Proceedings of the National Academy of Sciences, Volume 113, Number 15; April 12, 2016. TESTABLE IMPLICATIONS OF TRANSLATION INVARIANCE AND HOMOTHETICITY: VARIATIONAL, MAXMIN, CARA AND CRRA PREFERENCES

We provide revealed preference axioms that characterize models of translation invariant preferences. In particular, we characterize the models of variational, maxmin, CARA and CRRA utilities. In each case we present a revealed preference axiom that is satisfied by a dataset if and only if the dataset is consistent from the corresponding utility representation. Our results complement traditional...

Division of the Humanities and Social Sciences California Institute of Technology Pasadena, California 91125 Testable Implications of Translation Invariance and Homotheticity: Variational, Maxmin, Cara and Crra Preferences

We provide revealed preference axioms that characterize models of translation invariant preferences. In particular, we characterize the models of variational, maxmin, CARA and CRRA utilities. In each case we present a revealed preference axiom that is satisfied by a dataset if and only if the dataset is consistent with the corresponding utility representation. Our results complement traditional...

Scale or Translation Invariant Additive Preferences

A self-contained proof is presented of the fact that any increasing, continuous preferences over contingent payoffs that admit a (possibly state-dependent) additive representation are scale (resp. translation) invariant if and only if they take the form of CRRA (resp. CARA) expected utility, with the probabilities and coeffi cient of risk aversion uniquely determined as part of the representati...

Dynamically stable preferences

In the framework of dynamic choice under uncertainty, we define dynamic stability as a combination of two assumptions prevalent in the literature: dynamic consistency and the requirement that updated preferences belong to the same class as ex ante ones. Maxmin preferences are shown to be not dynamically stable, and any dynamically stable subset in that class can contain only expected utility pr...