Generalized Invariant Preferences: Two-parameter Representations of Preferences

Robert G. Chambers and John Quiggin

No 151186, Risk and Sustainable Management Group Working Papers from University of Queensland, School of Economics

Abstract: In this paper, we generalize the model of Quiggin and Chambers (2004) to allow for ambiguity, and derive conditions, referred to as generalized invariance, under which a two argument representation of preferences may be obtained independent of the existence of a unique probability measure. The first of these two arguments inherits the properties of standard means, namely, that they are upper semi-continuous, translatable and positively linearly homogeneous. But instead of being additive, these generalized means are superadditive. Superadditivity allows for means that are computed (conservatively) with respect to a set of prior probability measures rather than a singleton probability measure. The second argument of the preference structure is a further generalization of the risk index derived in Quiggin and Chambers (2004). It is sublinear in deviations from the generalized mean discussed above.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 31
Date: 2008-02-11
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Working Paper: Generalized Invariant Preferences: Two-parameter Representations of Preferences (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uqsers:151186

DOI: 10.22004/ag.econ.151186

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