Alternative Decision Criteria
Alternative Decision Criteria
This chapter describes a sample of the alternative decision criteria that have features which are normatively attractive. A standard critique made to the discounted expected utility (DEU) model that has been used in this volume is that the concavity of the utility function expresses at the same time the aversion to inequalities and the aversion to risk. Moreover, it does not take into account the possibility of an aversion to ambiguity on probabilities, or the formation of consumption habits. Such issues imply that the DEU model is not very good for explaining, or predicting, actual behaviors under uncertainty. However, as this book aims for normative rather than positive arguments, this chapter focuses not on what people actually do, but instead on determining what they should do.
Keywords: alternative decision criteria, discounted expected utility, utility function, actual behaviors, recursive expected utility, maxmin ambiguity aversion, smooth ambiguity aversion, intergenerational habit formation
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