Comonotonic Book-Making with Nonadditive Probabilities

E. Diecidue, P.P. Wakker

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Abstract

This paper shows how de Finetti's book-making principle, commonly used to justify additive subjective probabilities, can be modi-ed to agree with some nonexpected utility models.More precisely, a new foundation of the rank-dependent models is presented that is based on a comonotonic extension of the book-making principle.The extension excludes book-making only if all gambles considered induce a same rank-ordering of the states of nature through favorableness of their associated outcomes, and allows for nonadditive probabilities.Typical features of rank-dependence, hedging, ambiguity aversion, and pessimism and optimism, can be accommodated.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages22
Volume2000-76
Publication statusPublished - 2000

Publication series

NameCentER Discussion Paper
Volume2000-76

Keywords

  • Book-making
  • comonotonic
  • Choquet expected utility
  • ambiguity aversion
  • ordered vector space

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    Diecidue, E., & Wakker, P. P. (2000). Comonotonic Book-Making with Nonadditive Probabilities. (CentER Discussion Paper; Vol. 2000-76). Microeconomics.