A Bayesian Approach to Decision-Making under Ambiguity
AbstractA 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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Bibliographic InfoArticle provided by London School of Economics and Political Science in its journal Economica.
Volume (Year): 58 (1991)
Issue (Month): 232 (November)
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- Baillon, Aurélien & Driesen, Bram & Wakker, Peter P., 2012. "Relative concave utility for risk and ambiguity," Games and Economic Behavior, Elsevier, vol. 75(2), pages 481-489.
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- repec:hal:journl:halshs-00718642 is not listed on IDEAS
- Welsch, Heinz, 1995. "Greenhouse gas abatement under ambiguity," Energy Economics, Elsevier, vol. 17(2), pages 91-100, April.
- Théodora Dupont-Courtade, 2012. "Insurance demand under ambiguity and conflict for extreme risks : Evidence from a large representative survey," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00718642, HAL.
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