Risk, Ambiguity, and the Separation of Utility and Beliefs

Abstract

We introduce and characterize axiomatically a general model of static choice under uncertainty, which is possibly the weakest model in which a separation of cardinal utility and a representation of beliefs is achieved. Most of the popular non-expected utility models in the literature are special cases of it. To prove its usefulness, we show that the model can be used to generalize several well-known results on the characterization of risk aversion. Elsewhere, we have shown that it can be fruitfully applied to the problem of characterizing a notion of ambiguity aversion, as the separation of utility and beliefs that we achieve can be used to identify and remove aspects of risk attitude from the decision maker’s behavior.