Non-probabilistically Sophisticated Models of Risk Preferences and Beliefs

Non-probabilistically Sophisticated Models of Risk Preferences and Beliefs
Just as the Allais Paradox and similar evidence led to the development
of non-expected utility models of risk preferences, Ellsberg’s Paradoxes and similar phenomena have inspired the development of non-probabilistic models of preferences over subjectively uncertain acts. Such work has also progressed along two lines. One line replaces the subjective expected utility function with more general functional forms.3
The second line of research on non-probabilistic models treats W(x1 on E1; ...; x on Em) as a general smooth function of the events E1,
m
..., Em, and show how properties of W(⋅)’s event-derivatives relate to features of both beliefs and attitudes toward risk, again taking expected utility as its base case. Appendix 2A presents mathematical features of this line of research.