Bernoulli without bayes: a theory of utility-sophisticated preferences under ambiguity, mimeo

Princeton University. I thank the audiences for helpful comments. A decision-maker is utility-sophisticated if he ranks acts according to their expected utility whenever such comparisons are meaningful. We characterize utility sophistica-tion in cases in which probabilistic beliefs are not too imprecise, and show that in these cases utility-sophisticated preferences are completely determined by consequence util-ities and event attitudes captured by preferences over bets. The Anscombe-Aumann framework as employed in the classical contributions of Schmeidler (1989) and Gilboa-Schmeidler (1989) can be viewed as an important special case. For the class of utility sophisticated preferences with sufficiently precise beliefs, we also propose a definition of revealed probabilistic beliefs that overcomes the limitations of existing definitions