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Risk, Ambiguity, and the Rank-Dependence Axioms

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  • Mark J. Machina

Abstract

Choice problems in the spirit of Ellsberg (1961) suggest that rank-dependent ("Choquet expected utility") preferences over subjective gambles might be subject to the same difficulties that Ellsberg's earlier examples posed for subjective expected utility. These difficulties stem from event-separability properties that rank-dependent preferences partially retain from expected utility, and suggest that nonseparable models of preferences might be better at capturing features of behavior that lead to these paradoxes. (JEL D81)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.1.385
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 1 (March)
Pages: 385-92

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:1:p:385-92

Note: DOI: 10.1257/aer.99.1.385
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Cited by:
  1. Lapied, André & Toquebeuf, Pascal, 2012. "Dynamically consistent CEU preferences on f-convex events," Mathematical Social Sciences, Elsevier, vol. 63(3), pages 252-256.
  2. Chambers, Robert G & Grant, Simon & Polak, Ben & Quiggin, John, 2011. "A Two-Parameter Model of Dispersion Aversion," Risk and Sustainable Management Group Working Papers 151196, University of Queensland, School of Economics.
  3. David B. Brown & Enrico G. De Giorgi & Melvyn Sim, 2009. "A Satisficing Alternative to Prospect Theory," University of St. Gallen Department of Economics working paper series 2009 2009-09, Department of Economics, University of St. Gallen.
  4. André Lapied & Pascal Toquebeuf, 2011. "Dynamically consistent CEU preferences," Working Papers halshs-00856193, HAL.
  5. Hammond, Peter J & Zank, Horst, 2013. "Rationality and Dynamic Consistency under Risk and Uncertainty," The Warwick Economics Research Paper Series (TWERPS) 1033, University of Warwick, Department of Economics.
  6. Blavatskyy, Pavlo R., 2013. "Two examples of ambiguity aversion," Economics Letters, Elsevier, vol. 118(1), pages 206-208.
  7. Laure Cabantous & Denis Hilton & Howard Kunreuther & Erwann Michel-Kerjan, 2011. "Is imprecise knowledge better than conflicting expertise? Evidence from insurers’ decisions in the United States," Journal of Risk and Uncertainty, Springer, vol. 42(3), pages 211-232, June.
  8. Nascimento, Leandro, 2012. "The ex-ante aggregation of opinions under uncertainty," Theoretical Economics, Econometric Society, vol. 7(3), September.
  9. Enrico G. De Giorgi & David B. Brown & Melvyn Sim, 2010. "Dual representation of choice and aspirational preferences," University of St. Gallen Department of Economics working paper series 2010 2010-07, Department of Economics, University of St. Gallen.

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