The financial life often requires the calculation of some sort of expectations: expected utility, expected payoffs, expected losses, which are expressed as certain transforms of some random variables. We shall provide a method, based on the copula concept, to calculate the probabilities that these transforms belong to a certain neighbourhood of their expected values. First, we recall briefly th...

In economies with nonconvexities consumers can increase their expected utility by consuming lotteries. Lotteries are probability distributions over bundles in the consumption set. Standard revealed preference logic can be applied to choices in lottery space, however the implications are not readily interpretable. In this paper, we formulate the law of demand for lottery economies in terms of co...

There exist several characterizations of concavity for univariate functions. One of them states that a function is concave if and only if it has nonincreasing differences. This definition provides a natural generalization of concavity for multivariate functions called inframodularity. Inframodular transfers are defined and it is shown that a finite lottery is preferred to another by all expecte...

Many different rules for decision making have been introduced in the literature. We show that a notion of generalized expected utility proposed in a com­ panion paper [Chu and Halpern, 2003] is a univer­ sal decision rule, in the sense that it can represent essentially all other decision rules.

The de Finetti Theorem on exchangeable predictive priors is generalized to a framework where preference is represented by Choquet expected utility with respect to a belief function (a special capacity). The resulting model provides behavioral foundations for the decision-maker’s subjective theory of the environment in which there are factors common to all experiments (or sources of uncertainty)...

THIS SUPPLEMENT CONTAINS results identifying the relevant measures and implications of comparative ambiguity aversion for Continuous Symmetric versions of several additional models from the ambiguity literature: the extended MEU with contraction model (see, e.g., Gajdos, Hayashi, Tallon, and Vergnaud (2008), Gajdos, Tallon, and Vergnaud (2004), Kopylov (2008), Tapking (2004)), the vector expect...

This article investigates the structure onpreferences required to derive Ross’s arbitrage pricing theory (APT). It is shown that only ordinalpreferences are required. In particular, the APT does not require that agents possess preferences representable as riskaverse expected utility functions. This characteristic of the APT is not shared by the standard equilibriumbased capital asset pricing mo...

A shadow price is a process S̃ lying within the bid/ask prices S, S of a market with proportional transaction costs, such that maximizing expected utility from consumption in the frictionless market with price process S̃ leads to the same maximal utility as in the original market with transaction costs. For finite probability spaces, this note provides an elementary proof for the existence of suc...

On the domain of Choquet expected utility preferences with risk neutral lottery evaluation and totally monotone capacities, we demonstrate that proper scoring rules do not exist. This implies the non-existence of proper scoring rules for any larger class of preferences (CEU with convex capacities, multiple priors). We also show that if a decision maker whose behavior conforms to the multiple pr...

The contribution of this work is designing and developing enhanced market-driven agents with the flexibility to (1) respond to changing market conditions, and (2) raise and relax trade aspirations. Previous theoretical analyses have shown that market-driven agents (MDAs) make prudent compromises by reacting to changing market situations by taking into account factors such as competition, deadli...