Kreps and Porteus' (1978) recursive expected utility model allows an agent to care intrinsically about the timing of the resolution of uncertainty. For example, an anxious agent may prefer early resolution while a hopeful agent may prefer late. Recursive expected utility achieves this flexibility by relaxing the reduction of compound lottery axiom for temporal lotteries. The model remains tractable thanks to recursivity: preferences today are built up from preferences tomorrow that do not themselves depend on unrealized contingencies. In addition to recursivity, Kreps and Porteus assumed that preferences over the lotteries within each stage satisfy the standard independence axiom. Recursive non-expected utility models keep the tractability of Kreps and Porteus' analysis while allowing both for preferences about the timing of resolution of uncertainty, and for violations of independence. That is, in evaluating lotteries at each stage, recursive non-expected utility models replace independence by some weaker axiom.
展开▼
