A Bayesian characterization of ambiguity is proposed in which outcomes constitute information that modifies the retrospective evaluation of a course of action. Hindsight bias occurs when the ex ante valuation of a course of action is affected by contemplation of hindsight evaluation. The model provides an explanation of various valuations of the expected utility model, notably the Ellsberg paradox (and related effects), the common ratio, and common consequence effects. In contrast to recent theories concerning decision-making under ambiguity, probabilities are not required to be biased or to be sub- or superadditive. Some experimental tests of ambiguity coherence are also reported. Copyright 1991 by The London School of Economics and Political Science.
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Article provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 58 (1991) Issue (Month): 232 (November) Pages: 417-40 Download reference. The following formats are available: HTML
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