Iterated Choquet expectations: A possibility result

Contrary to Yoo’s (1991) [Yoo, K.-R., 1991. The iterative law of expectation and non-additive probability measure. Economics Letters 37, 145–149] result, it is shown that the law of iterated expectations can be maintained in the class of Choquet expected utility preferences, even though beliefs are...

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Bibliographic Details
Published in:Economics letters 2013-08, Vol.120 (2), p.155-159
Main Author: Dominiak, Adam
Format: Article
Language:English
Subjects:
Ambiguity
Bayesian analysis
Capacities
Choquet expected utility
Consequentialism
Expectation
Expected utility
Integrals
Iterative methods
Law
Partition
Preferences
Probability
Studies
The law of iterated expectations
Updating preferences
Utility functions
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Summary:Contrary to Yoo’s (1991) [Yoo, K.-R., 1991. The iterative law of expectation and non-additive probability measure. Economics Letters 37, 145–149] result, it is shown that the law of iterated expectations can be maintained in the class of Choquet expected utility preferences, even though beliefs are non-additive. Choquet integrals satisfy the law of iterated expectations on a fixed partition if and only if the unconditional capacity is additively separable among the events forming that partition, and the conditional capacity is derived by applying Bayes’ rule. •The law of iterated expectations is proven for Choquet preferences.•The analysis is constrained to fixed partitions.•The additive separability condition of an unconditional capacity and Bayesian updating are necessary and sufficient.•Behavioral axioms justifying the law of iterated Choquet integrals are provided.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2013.04.008