Economics Webinar - Axiomatizing Correlation Preference

Building on the emerging literature on correlation preference reflecting regret and salience considerations, we offer an axiomatization of correlation utility without requiring transitivity or completeness. We next axiomatize a correlation expected utility (CEU) by adopting an independence axiom for correlation preference. By weakening independence to betweenness, we axiomatize a non-CEU preference, called correlation betweenness utility (CBU), which can account for recent experimental evidence of correlation preference, including the correlated Allais paradox which is incompatible with CEU. We further investigate the implications of (in)completeness in CEU and CBU. In the absence of correlation sensitivity, CEU reduces to transitive expected utility while CBU reduces to a skew-symmetric bilinear representation under another weakening of independence, called projective independence, and further reduces to weighted utility under transitivity.