Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catastrophic losses
AbstractThe paper investigates a decision-making process involving both risk and ambiguity. Differently from existing papers [Basili, M., Chateauneuf, A., Fontini, F., 2005. Choices under ambiguity with familiar and unfamiliar outcomes, Theory and Decision 58, 195-207; Chichilnisky, G., 2000. Axiomatic approach to choice under uncertainty with catastrophic risks. Resources and Energy Economics 22, 221-231; Chichilnisky, G., 2002. In: El-Shaarawi, A.,H., Piegorsch, W.W. (Eds.), Catastropic Risks. Encyclopedia of Environmetrics, vol. 1. John Wiley & Sons, Ltd, Chichester, UK, pp. 274-279], we assume that, in a Choquet Expected Utility framework, the decision-maker is pessimistic with respect to unfamiliar (catastrophic) losses, optimistic with respect to unfamiliar (windfall) gains and ambiguity-neutral with respect to the familiar world. A representation of the decision-maker's choice is obtained that mimics the Restricted Bayes-Hurwicz Criterion. In this way a characterization of the Precautionary Principle is introduced for decision-making processes under ambiguity with catastrophic losses and/or windfall gains.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Ecological Economics.
Volume (Year): 67 (2008)
Issue (Month): 3 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/ecolecon
Ambiguity Risk Choquet Integral Restricted Bayes-Hurwicz Criterion Precautionary Principle;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nathalie Etchart-Vincent, 2004. "Is Probability Weighting Sensitive to the Magnitude of Consequences? An Experimental Investigation on Losses," Journal of Risk and Uncertainty, Springer, vol. 28(3), pages 217-235, 05.
- Schmeidler, David, 1989.
"Subjective Probability and Expected Utility without Additivity,"
Econometric Society, vol. 57(3), pages 571-87, May.
- David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
- Gollier, Christian & Jullien, Bruno & Treich, Nicolas, 2000. "Scientific progress and irreversibility: an economic interpretation of the 'Precautionary Principle'," Journal of Public Economics, Elsevier, vol. 75(2), pages 229-253, February.
- Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
- Ulrich Schmidt & Chris Starmer & Robert Sugden, 2005.
"Explaining preference reversal with third-generation prospect theory,"
2005-19, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Ulrich Schmidt & Chris Starmer & Robert Sugden, 2005. "Explaining preference reversal with third-generation prospect theory," Discussion Papers 2005-19, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Moshe Levy & Haim Levy, 2002. "Prospect Theory: Much Ado About Nothing?," Management Science, INFORMS, vol. 48(10), pages 1334-1349, October.
- Marcello Basili & Alain Chateauneuf & Fulvio Fontini, 2004.
"Choices under ambiguity with familiar and unfamiliar outcomes,"
Cahiers de la Maison des Sciences Economiques
b04115, Université Panthéon-Sorbonne (Paris 1).
- Marcello Basili & Alain Chateauneuf & Fulvio Fontini, 2005. "Choices Under Ambiguity With Familiar And Unfamiliar Outcomes," Theory and Decision, Springer, vol. 58(2), pages 195-207, 03.
- Koszegi, Botond & Rabin, Matthew, 2004.
"A Model of Reference-Dependent Preferences,"
Department of Economics, Working Paper Series
qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Dow, James & Werlang, Sérgio Ribeiro da Costa, 1992.
"Nash Equilibrium Under Knightian Uncertainty: Breaking Down Backward Induction,"
Economics Working Papers (Ensaios Economicos da EPGE)
186, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Dow James & Werlang Sergio Ribeiro Da Costa, 1994. "Nash Equilibrium under Knightian Uncertainty: Breaking Down Backward Induction," Journal of Economic Theory, Elsevier, vol. 64(2), pages 305-324, December.
- Chichilnisky, Graciela, 2000. "An axiomatic approach to choice under uncertainty with catastrophic risks," Resource and Energy Economics, Elsevier, vol. 22(3), pages 221-231, July.
- Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
- BRECHET, Thierry & THENIE, Julien & ZEIMES, Thibaut & ZUBER, Stéphane, .
"The benefits of cooperation under uncertainty: the case of climate change,"
CORE Discussion Papers RP
-2435, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- BRECHET, Thierry & THENIE, Julien & ZEIMES, Thibaut & ZUBER, Stéphane, 2010. "The benefits of cooperation under uncertainty: the case of climate change," CORE Discussion Papers 2010062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Marcello Basili, 2008. "The global strategy to cope with H5N1: the property rights caveat," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0908, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
- Fulvio Fontini & Georg Umgiesser & Lucia Vergano, 2008.
"The Role of Ambiguity in the Evaluation of the Net Benefits of the MOSE System in the Venice Lagoon,"
"Marco Fanno" Working Papers
0080, Dipartimento di Scienze Economiche "Marco Fanno".
- Fontini, Fulvio & Umgiesser, Georg & Vergano, Lucia, 2010. "The role of ambiguity in the evaluation of the net benefits of the MOSE system in the Venice lagoon," Ecological Economics, Elsevier, vol. 69(10), pages 1964-1972, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.