Subjective Expected Utility Theory with State-Dependent Preferences

Abstract

This paper extends Savage’s subjective expected utility theory to include state-dependent preferences. The dependence of the decision maker’s preferences over consequences on the states of nature is represented by state-specific mappings of the set of consequences onto itself. Within this framework Savage’s postulates are reformulated and it is shown that there exist subjective expected utility representations of the preference relation over acts with unique, nonatomic, probability measure on the algebra of all events, and a state-dependent utility function over the set of consequences. Journal of Economic Literature Classification Number: D81. © 1993 Academic Press, Inc.