In the wake of growing awareness, decision makers anticipate that they might become aware of material possibilities and ideas that, in their current state of ignorance, are unimaginable. This anticipation manifests itself in their choice behavior. This paper models this awareness of unawareness and axiomatizes a probabilistic sophisticated representation of beliefs about ignorance and subjectiv...

A new portfolio choice model in continuous time is formulated for both complete and incomplete markets, where the quantile function of the terminal cash flow, instead of the cash flow itself, is taken as the decision variable. This formulation covers a wide body of existing and new models with law-invariant preference measures, including expected utility maximisation, mean-variance, goal reachi...

In random incentive mechanisms agents choose from multiple problems and a randomization device selects a single problem to determine payment. Agents are assumed to act as if they faced each problem on its own. While this approach is valid when agents are expected utility maximizers, ambiguity-averse agents may use the randomization device to hedge and thereby contaminate the data.

We develop awareness-dependent subjective expected utility by taking unawareness structures introduced in Heifetz, Meier, and Schipper (2006, 2008, 2009) as primitives in the Anscombe-Aumann approach to subjective expected utility. We observe that a decision maker is unaware of an event if and only if her choices reveal that the event is “null” and the negation of the event is “null”. Moreover,...

We investigate the impact of a non-financial background risk ε̃ on the preference rankings between two independent financial risks z̃1 and z̃2 for an expected-utility maximizer. More precisely, we provide necessary and sufficient conditions for the alternative (x0 + z̃1, y0 + ε̃) to be preferred to (x0 + z̃2, y0 + ε̃) whenever (x0 + z̃1, y0) is preferred to (x0 + z̃2, y0). Utility functions that preserv...

Based on the polyhedral representation of Künzi-Bay and Mayer (2006), we propose decomposition frameworks for handling CVaR objectives and constraints in two-stage stochastic models. For the solution of the decomposed problems we propose special Level-type methods.

In this paper we address the problem of coalition formation in hedonic context. Our modelling tries to be as realistic as possible. In previous models, once an agent joins a coalition it would not be able to leave the coalition and join the new one; in this research we made it possible to leave a coalition but put some restrictions to control the behavior of agents. Leaving or staying of an age...

This research examined whether youth’s forecasted risk taking is best predicted by a compensatory (namely, subjective expected utility) or non-compensatory (e.g., single-factor) model. Ninety youth assessed the importance of perceived benefits, importance of perceived drawbacks, subjective probability of benefits, and subjective probability of drawbacks for 16 risky behaviors clustered evenly i...

Kuhn’s Theorem shows that extensive games with perfect recall can equivalently be analyzed using mixed or behavioral strategies, as long as players are expected utility maximizers. This note constructs an example that illustrates the limits of Kuhn’s Theorem in an environment with ambiguity averse players who use a maxmin decision rule and full Bayesian updating.