Cautious Dual-Self Expected Utility and Weak Uncertainty Aversion

Abstract

Gilboa and Schmeidler's (1989) uncertainty aversion plays a central role in decision theory and economics, yet many inconsistent behaviors have been observed in experiments. Motivated by this, we study an axiom postulating a minimal degree of uncertainty aversion. Our main result shows that this axiom yields a new class of representations, called cautious dual-self expected utility representations. In this model, two selves in the decision maker's mind play an extensive-form game to determine the belief used for evaluation, where the first mover is selected cautiously. As illustrated by two alternative representations, cautiously choosing between two "dual" scenarios is the key implication of our axiom.