Moral hazard and conditional preferences

Jacques H. Drèze, Aldo Rustichini

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

Conditional Expected Utility Theory (CEUT) provides an axiomatic foundation for a theory of decision under uncertainty which allows agents to choose which event in a given partition of the state space will occur. Here, we provide an alternative axiomatization of this situation. In this framework, CEUT may be seen as a special case of Decision theory with moral hazard at the same time it is possible to describe the conditions in which this theory is free from possible difficulties. They turn out to be very strong: they imply that either the decision-maker has full control of the events, or he is a standard expected utility maximizer. We also provide an axiomatic justification of the partition structure.

Original languageEnglish (US)
Pages (from-to)159-181
Number of pages23
JournalJournal of Mathematical Economics
Volume31
Issue number2
DOIs
StatePublished - Mar 1999

Keywords

  • Conditional expected utility theory
  • Decision theory
  • Moral hazard

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