If an agent's preferences over subjectively uncertain acts are consistent with him having a subjective probability distribution over the states of nature, then those preferences can induce consistent preferences over 'objectively' risky lotteries. Such 'probabilistically sophisticated' behavior allows us to treat decision making under uncertainty as though it is under risk. This paper first characterizes exactly what probabilistic sophistication entails for an agent's beliefs about the likelihood of states of nature. Secondly, it presents characterizations of probabilistically sophisticated individuals whose induced lottery preferences obey neither the independence axiom nor a monotonicity property that is shown to share some of the nature of independence.

In a recent paper Rubinstein, Safra, and Thomson (RST) have provided an interesting re-examination of the widely applied Nash solution for a two-person bargaining problem. They recast the usual Nash bargaining problem into a more natural setting of feasible alternatives with a disagreement outcome. The two players are then described by their risk preferences defined on the set of lotteries over the alternatives and the disagreement outcome. This enables them to define an ordinal Nash solution in terms of the agents' risk preferences. Essentially, their ordinal solution is an outcome that is immune against possible objections. Freeing the definition of the Nash solution from utility naturally led RST to extending its scope to Non-Expected Utility (NEU) preferences. We contend, however, that the family of NEU preferences considered by RST is unduly restrictive. The assumptions imposed on the risk preferences by RST essentially exclude any members of the Rank Dependent Expected Utility (RDEU) and betweenness families that can accommodate the very choice paradoxes that stimulated the development of NEU theory. As these are two of the most extensively analyzed and widely applied NEU models in the literature, this seems to cast doubt on how broad an extension to NEU preferences the RST approach affords. We demonstrate, however, that RST's analysis can be modified so that their conclusion is valid in a wider class of preferences that can include examples of RDEU preferences. This class consists of preferences that admit what we term a disagreement linear representation.

The Risk Premium for Equity: Implications for the Proposed Diversification of the Social Security Fund by Simon Grant and John Quiggin. Published in volume 92, issue 4, pages 1104-1115 of American Economic Review, September 2002

Gul and Pesendorfer (2015) propose a promising theory of decision under uncertainty, they dub Hurwicz expected utility (HEU). HEU is a special case of α ‐maxmin EU that allows for preferences over sources of uncertainty. It is consistent with most of the available empirical evidence on decision under risk and uncertainty. We show that HEU is also tractable and can readily be measured and tested. We do this by deriving a new two‐parameter functional form for the probability weighting function, which fits our data well and which offers a clean separation between ambiguity perception and ambiguity aversion. In two experiments, we find support for HEU's predictions that ambiguity aversion is constant across sources of uncertainty and that ambiguity aversion and first order risk aversion are positively correlated.

Harsanyi's impartial observer must consider two types of lotteries: imaginary identity lotteries (“accidents of birth”) that she faces as herself and the real outcome lotteries (“life chances”) to be faced by the individuals she imagines becoming. If we maintain a distinction between identity and outcome lotteries, then Harsanyi-like axioms yield generalized utilitarianism, and allow us to accommodate concerns about different individuals' risk attitudes and concerns about fairness. Requiring an impartial observer to be indifferent as to which individual should face similar risks restricts her social welfare function, but still allows her to accommodate fairness. Requiring an impartial observer to be indifferent between identity and outcome lotteries, however, forces her to ignore both fairness and different risk attitudes, and yields a new axiomatization of Harsanyi's utilitarianism.

This paper provides a theoretical explanation for the persistent use of alphabetical name ordering on academic papers in economics. In a context in which market participants are interested in evaluating the relative individual contribution of authors, it is an equilibrium for papers to use alphabetical ordering. Moreover, it is never an equilibrium for authors always to be listed in order of relative contribution. In fact, we show via an example that the alphabetical name ordering norm may be the unique equilibrium, althoug multiple equilibria are also possible. Finally, we charaterize the welfare properties of the noncooperative equilibrium and show it to produce research of lower quality than is optimal and than would be achieved if coauthors were forced to use name ordering to signal relative contribution.