Additive-Belief-Based Preferences

We introduce a new class of preferences — which we call additive-belief-based (ABB) —that captures a general and yet tractable approach to belief-based utility, and that encompasses many popular models in the behavioral literature. We show that the general class of ABB preferences and two prominent special cases, which allow utility to depend on each period’s beliefs but not on changes in beliefs across periods, are fully characterized by suitable relaxations of the standard Independence axiom. We identify the intersection of ABB preferences with the class of recursive preferences and characterize attitudes towards the timing of resolution of uncertainty for ABB preferences. Our approach helps to better understand, in terms of testable predictions, existing models and leads to new models that can accommodate previously uncaptured behavioral patterns.

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