The Problem of State-Dependent Utility: A Reappraisal
Abstract. State-dependent utility is a problem for decision theory under uncertainty. It questions the very possibility that beliefs be revealed by choice data. According to the current literature, all models of beliefs are equally exposed to the problem. Moreover, the problem is solvable only when the decision-maker can influence the resolution of uncertainty. This paper shows that these two views must be abandoned. The various models of beliefs are unequally exposed to the problem of state-dependent utility. The problem is solvable even when the decision-maker has no influence over the resolution of uncertainty. The implications of such reappraisal for a philosophical appreciation of the revealed preference methodology are discussed.