MICRO/THEORY: Multidimensional Choices under Uncertainty; Professor Shaowei KE (University of Michigan)

Abstract

Choice alternatives are often multidimensional and risky. How to evaluate them is unclear. Three approaches are in sharp contrast: One aggregates all dimensions and then evaluates risk, one works reversely, and one evaluates each dimension and the associated risk following an exogenous linear order on dimensions. We characterize an axiomatic model that nests them as special cases. The decision maker's preference reveals how she brackets and orders the dimensions, based on which she evaluates risk. Using our framework, we derive a model with generalized bracketing and a model with a subjective weak order on dimensions. Comparative static analyses are provided.