Modeling attitudes towards uncertainty and risk through the use of Choquet integral (Q1339163)

From the author's abstract and introduction: ``The aim of this paper is to present in a unified framework a survey of some results related to Choquet Expected Utility models, a class of models introduced separately by Quiggin, Yaari and Schmeidler which allow to separate attitudes towards uncertainty (or risk) from attitutes towards wealth, while respecting the first order stochastic dominance axiom. In section 2 (Decisions under uncertainty), first assuming constant marginal utility of wealth, a simple axiomatization of Schmeidler's model is presented. It is based on the central representation theorem of Schmeidler. Then some representation theorems related to the Choquet integral are given, including Greco's general theorem. The ability of Schmeidler's model to describe uncertainty aversion is described. Dispensing with constant marginal utility of wealth leads to the proper Choquet expected utility model which is examined subsequently. Then the paper quotes some economic applications, and focuses on the ability of Schmeidler's model to explain the gap between selling and buying prices of financial assets. Section 3 concentrates on decisions under risk, and first outlines how Yaari's model can easily be deduced from Schmeidler's in the presence of an objective probability measure. Then a direct application of Yaari's model to insurance is examined. The section ends by examining the Rank Dependent Expected Utility model (RDEU) which removes the constant marginal utility of wealth restriction of Yaari's model. The non- equivalence of some usual definitions of risk aversion (equivalent under Expected Utility) is considered. Finally, a natural weakening of Savage's sure-thing principle, the comonotonic sure-thing principle, extensively used in the literature of the existing rank-dependent theories, is examined. This axiom fails to characterize RDEU, but leads to the Rank Dependent Utility model, a meaningful general theory''.