Document Type

Article

Publication Date

9-16-2024

Abstract

Axiomatic non-expected utility models are generally more difficult to falsify than expected utility theory as they are less restrictive (by weakening the independence axiom). Recent work computes the Vapnik-Chervonenkis (VC) dimension of a theory to determine the extent to which the theory is falsifiable. Popular ambiguity theories have VC dimensions that increase exponentially in the number of states or that are infinite, whereas the VC dimension of expected utility theory increases linearly in the number of states. In this paper we axiomatically characterize the class of generalized non-extreme outcome expected utility (NEO-EU) preferences in the Anscombe-Aumann framework and show that their VC dimension increases linearly in the number of states. Our paper shows that this popular class of ambiguity preferences which has been broadly applied provides a counter-example to the conjecture that axiomatic models of ambiguity attitudes are substantially more difficult to falsify than expected utility theory.

Comments

ESI Working Paper 24-15

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