(No-)Betting Pareto Optima Under Rank-Dependent Utility

• 成果类型: Article
• 署名作者: Beissner, Patrick; Boonen, Tim; Ghossoub, Mario
• 署名单位: Australian National University; University of Hong Kong; University of Waterloo
• 刊物名称: MATHEMATICS OF OPERATIONS RESEARCH
• ISSN/ISSBN: 0364-765X
• DOI: 10.1287/moor.2022.0317
• 发表日期: 2024
• 关键词: EXPECTED-UTILITY; risk-aversion; prospect-theory; ambiguity aversion; marginal utility; sharing beliefs; REPRESENTATION; probability; DECISION

摘要

In a pure-exchange economy with no aggregate uncertainty, we characterize in closed form and full generality Pareto-optimal allocations between two agents who maximize (nonconcave) rank-dependent utilities (RDU). We then derive a necessary and sufficient condition for Pareto optima to be no-betting allocations (i.e., deterministic allocations or full insurance allocations). This condition depends only on the probability weighting functions of the two agents and not on their (concave) utility of wealth. Hence, with RDU preferences, it is the difference in probabilistic risk attitudes given common beliefs rather than heterogeneity or ambiguity in beliefs that is a driver of betting behavior. As by-product of our analysis, we answer the question of when sunspots matter in this economy.