Scale or Translation Invariant Additive Preferences

Research output: Working paper

Abstract

A self-contained proof is presented of the fact that any increasing, continuous preferences over contingent payoffs that admit a (possibly state-dependent) additive representation are scale (resp. translation) invariant if and only if they take the form of CRRA (resp. CARA) expected utility, with the probabilities and coefficient of risk aversion uniquely determined as part of the representation. Thus scale or translation invariance allows a significant simplification of the ordinal foundations of subjective expected utility.
Original languageEnglish (US)
Number of pages11
StatePublished - Mar 2016

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