Differentiating ambiguity and ambiguity attitude

The objective of this paper is to show how ambiguity, and a decision maker (DM)'s response to it, can be modelled formally in the context of a general decision model. We introduce a relation derived from the DM's preferences, called “unambiguous preference”, and show that it can be represe...

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Bibliographic Details
Published in:Journal of economic theory 2004-10, Vol.118 (2), p.133-173
Main Authors: Ghirardato, Paolo, Maccheroni, Fabio, Marinacci, Massimo
Format: Article
Language:English
Subjects:
Ambiguity
Clarke differentials
Decision making models
Economic theory
Expected utility
Studies
Unambiguous preference
α-maxmin expected utility
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Summary:The objective of this paper is to show how ambiguity, and a decision maker (DM)'s response to it, can be modelled formally in the context of a general decision model. We introduce a relation derived from the DM's preferences, called “unambiguous preference”, and show that it can be represented by a set of probabilities. We provide such set with a simple differential characterization, and argue that it is a behavioral representation of the “ambiguity” that the DM may perceive. Given such revealed ambiguity, we provide a representation of ambiguity attitudes. We also characterize axiomatically a special case of our decision model, the “ α-maxmin” expected utility model.
ISSN:0022-0531
1095-7235
DOI:10.1016/j.jet.2003.12.004