Rank-Dependent Pessimism and its divergence from Maxmin Expected Utility

Abstract

The distinction between pessimism and uncertainty aversion has not been fully clarified in the economics literature, largely due to their intuitive similarities. However, understanding their unique economic implications requires a precise definition of each concept. This paper introduces a decision-theoretic formalization of pessimism, termed Rank-Dependent Pessimism. While it is equivalent to the conventional notion of uncertainty aversion within Choquet Expected Utility models, the two concepts diverge in a more general setting. This raises fundamental questions, such as whether all Maxmin Expected Utility preferences can actually be classified as pessimistic.