Catastrophic Attention Preferences

Abstract

This paper provides an axiomatic foundation for catastrophic thinking, a form of pessimism in which an agent evaluates uncertain alternatives by attending only to a subset of adverse outcomes. We introduce Catastrophic Attention Preferences (CAP), under which an act is evaluated by its subjective expected utility conditional on the worst outcomes, up to a subjectively determined probability threshold $q$. The resulting functional is a subjective counterpart of Expected Shortfall: both the agent's belief $μ$ and her threshold $q$ are derived from preferences rather than assumed, without a probability distribution given as a primitive. Our main result is a complete behavioral characterization: six axioms, one of which, Catastrophic Complementarity, carries the behavioral content of catastrophic thinking, together with two standard richness conditions, are equivalent to the existence of a CAP representation, and the parameters $(μ, q)$ are unique. The parameters are fully identified from probability equivalents of events, simple binary bets that can be elicited experimentally. We characterize comparative ambiguity aversion within the class: with common beliefs, ambiguity aversion is completely ordered by $q$; with different beliefs, we provide a necessary and sufficient condition on the two belief-threshold pairs. The model admits an equivalent multiple priors representation with a closed-form set of priors, nests subjective expected utility at $q = 1$, and converges to maxmin expected utility as $q \rightarrow 0$.