Cash-invariant hull representation of divergence preferences

Abstract

Uniformly weighted divergence preferences (UWDP) introduced in Maccheroni et al. (2006) are an important class of risk-averse preferences that contain as a special case the monotone mean--variance utility. UWDP are characterised by the lowest expected value of an act in $L^\infty$ under an adversarially chosen probability measure combined with the divergence of this measure. Our main result provides an alternative, computationally friendlier formula, which establishes in full generality that UWDP are the translation-invariant hull of state-independent expected utility over $L^0$. Some consequences of the new representation are studied.