Uncertainty aversion and preference for randomisation

Article Abstract:

The condition characterized by uncertainty aversion does not exactly show a high degree of preference for randomness except in situations described by a model created by Anscombe and Aumann (1963). In situations subject to the assumptions and preconditions of the Savage-type decision theory, such a bias towards randomization does not exist. Furthermore, randomization will not matter at all except in cases where there is a choice between alternative randomizing devices having the same degree of probability.ff

Usage, Uncertainty, Random variables

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The arbitrage pricing theorem with non-expected utility preferences

Article Abstract:

The financial theorem on arbitrage pricing shows that a financial asset's price can be represented as a linear combination of certain market factor prices. Von Neumann-Morgenstern preferences are the most popular solution to the result, which is shown to exhibit robustness in that a true condition is maintained with the use of certain non-expected utility preference varieties. Machina preferences, the rank dependent model and non-additive subjective probabilities are considered.

Equilibrium (Economics)

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A theorem on portfolio separation with general preferences

Article Abstract:

D. Cass and J.E. Stiglitz's theory on complete markets portfolio separation is generalized to the case of general preferences over state contingent payoffs. Separation results are derived from investor preference restrictions, unlike in S.A. Ross and L.T. Nielson's approach wherein separation results are derived from assumptions on pay-off distributions. Portfolio separation is shown to display similarities with A. Lewbel's demand rank definition.

Demand (Economics)

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