Scale-invariant uncertainty-averse preferences and source-dependent constant relative risk aversion

Costis Skiadas*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


Preferences are defined over payoffs that are contingent on a finite number of states representing a horse race (Knightian uncertainty) and a roulette wheel (objective risk). The class of scale-invariant (SI) ambiguity-averse preferences, in a broad sense, is uniquely characterized by a multiple-prior utility representation. Adding a weak certainty-independence axiom is shown to imply either unit coefficient of relative risk aversion (CRRA) toward roulette risk or SI maxmin expected utility. Removing the weak independence axiom but adding a separability assumption on preferences over pure horse-race bets leads to source-dependent constant-relative-risk-aversion expected utility with a higher CRRA assigned to horse-race uncertainty than to roulette risk. The multiple-prior representation in this case is shown to generalize entropic variational preferences. An appendix characterizes the functional forms associated with SI ambiguity-averse preferences in terms of suitable weak independence axioms in place of scale invariance.

Original languageEnglish (US)
Pages (from-to)59-93
Number of pages35
JournalTheoretical Economics
Issue number1
StatePublished - Jan 2013


  • Ambiguity aversion
  • Homotheticity
  • Scale invariance
  • Source-dependent risk aversion
  • Uncertainty aversion

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)


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