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A Theory Of Household Behavior Under Uncertainty, John Heineke, M. K. Block

Economics

In this paper we are concerned with the effects of uncertainty on household decisions. In particular we are interested in the response of a single economic agent's factor allocations to "changes in the amount of uncertainty" with which the agent's beliefs regarding his income are held. For problems of choice under uncertainty the recent work of Arrow [1], Sandmo [9, 10, 11], Leland [5, 6], Stiglitz [12], and others clearly testifies to the power of the expected utility hypothesis as an analytical framework. In what follows two models are examined in which the agent is assumed to be confronting a …