Local expected utility without compactness
Loading...
Date
1992-08
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
For probability distributions defined over a finite interval, it is well known that the hypothesis of smooth preferences leads to an elegant generalization of expected utility theory. One can show that local utility functions exist, and that their shape and curvature describe attitude to risk just as in the classical von Neumann Morgernstern theory. As well as encompassing the classical theory, convincing explanations are provided for the ailais paradox and other anomalies.
Unfortunately, the fineness assumption excludes the normal distributions and most of the important distributions of economics. This paper shows that the fineness assumption can be dispensed with, leading to a theory with a much broader field of application.
Description
Keywords
Economic growth, Classical theory,