Function-coherent gambles

The desirable gambles framework provides a foundational approach to imprecise probability theory but relies heavily on linear utility assumptions. This paper introduces function-coherent gambles, a generalization that accommodates non-linear utility while preserving essential rationality properties. We establish core axioms for function-coherence and prove a representation theorem that characterizes acceptable gambles through continuous linear functionals. The framework is then applied to analyze various forms of discounting in intertemporal choice, including hyperbolic, quasi-hyperbolic, scale-dependent, and state-dependent discounting. We demonstrate how these alternatives to constant-rate exponential discounting can be integrated within the function-coherent framework. This unified treatment provides theoretical foundations for modeling sophisticated patterns of time preference within the desirability paradigm, bridging a gap between normative theory and observed behavior in intertemporal decision-making under genuine uncertainty.

Publication Details

Journal
ArXiv.org
Published
2025-02-22
Primary Topic
Decision-Making and Behavioral Economics
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article
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article

Function-coherent gambles

ArXiv.org
Decision-Making and Behavioral Economics
article

Function-coherent gambles

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Abstract

The desirable gambles framework provides a foundational approach to imprecise probability theory but relies heavily on linear utility assumptions. This paper introduces function-coherent gambles, a generalization that accommodates non-linear utility while preserving essential rationality properties. We establish core axioms for function-coherence and prove a representation theorem that characterizes acceptable gambles through continuous linear functionals. The framework is then applied to analyze various forms of discounting in intertemporal choice, including hyperbolic, quasi-hyperbolic, scale-dependent, and state-dependent discounting. We demonstrate how these alternatives to constant-rate exponential discounting can be integrated within the function-coherent framework. This unified treatment provides theoretical foundations for modeling sophisticated patterns of time preference within the desirability paradigm, bridging a gap between normative theory and observed behavior in intertemporal decision-making under genuine uncertainty.

ArXiv.org
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Decision-Making and Behavioral Economics
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