Ambiguity Without a State Space
Many decisions involve both imprecise probabilities and intractable states of the world. Objective expected utility assumes unambiguous probabilities; subjective expected utility assumes a completely specified state space. This paper analyses a third domain of preference: sets of consequential lotte...
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Veröffentlicht in: | The Review of economic studies 2008, Vol.75 (1), p.3-28 |
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Format: | Artikel |
Sprache: | eng |
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Online-Zugang: | Volltext |
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Zusammenfassung: | Many decisions involve both imprecise probabilities and intractable states of the world. Objective expected utility assumes unambiguous probabilities; subjective expected utility assumes a completely specified state space. This paper analyses a third domain of preference: sets of consequential lotteries. Using this domain, we develop a theory of objective ambiguity without explicit reference to any state space. We characterize a representation that integrates a non-linear transformation of first-order expected utility with respect to a second-order measure. The concavity of the transformation and the weighting of the measure capture ambiguity aversion. We propose a definition for comparative ambiguity aversion. |
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ISSN: | 0034-6527 1467-937X |
DOI: | 10.1111/j.1467-937X.2007.00473.x |