State-dependence
Abstract
State-dependence of preferences and utility prevents a separate elicitation of beliefs and preferences and contradicts the separability of probabilities and utilities, standardly performed, in Savage’s framework, by the theoretical division of labor between P3 and P4. Two main alternative models are discussed: Karni’s, which is based on the admission of hypothetical preferences, and Drèze’s, which relates state-dependence to moral hazard and is in principle confined within the limits of a traditional, albeit sophisticated choice-theoretical framework. State-dependence points again toward a deep conflict between prevailing behavior, compelling intuitions, and standard decision-theoretical and choice-theoretical ...
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