Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111070
Authors: 
Beißner, Patrick
Lin, Qian
Year of Publication: 
2015
Series/Report no.: 
Working Papers, Center for Mathematical Economics 535
Abstract: 
We establish a class of fully nonlinear conditional expectations. Similarly to the usage of linear expectations when a probabilistic description of uncertainty is present, we observe analogue quantitative and qualitative properties. The type of nonlinearity captures the agents sentiments of optimism and pessimism in an ambiguous environment. We then introduce an expected utility under a nonlinear expectation, and show monotonicity and continuity of utility. Risk aversion is characterized, and the properties of the certainty equivalent are discussed. Finally, we derive an Arrow-Pratt approximation of the static certainty equivalent and investigate the dynamic version via recursive equations.
Subjects: 
nonlinear expectation
Knightian Uncertainty
time consistency
risk aversion
certainty equivalent
optimism and pessimism
JEL: 
C60
D81
D90
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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