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Ambiguity aversion and wealth effects

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  • Cerreia-Vioglio, Simone
  • Maccheroni, Fabio
  • Marinacci, Massimo

Abstract

We study how changes in wealth affect ambiguity attitudes. We define a decision maker as decreasing (resp., increasing) absolute ambiguity averse if he becomes less (resp., more) ambiguity averse as he becomes richer. Our definition is behavioral. We provide different characterizations of these attitudes for a large class of preferences: monotone and continuous preferences which satisfy risk independence. We then specialize our results for different subclasses of preferences. Inter alia, our characterizations provide alternative ways to test experimentally the validity of some of the models of choice under uncertainty.

Suggested Citation

  • Cerreia-Vioglio, Simone & Maccheroni, Fabio & Marinacci, Massimo, 2022. "Ambiguity aversion and wealth effects," Journal of Economic Theory, Elsevier, vol. 199(C).
    • Handle: RePEc:eee:jetheo:v:199:y:2022:i:c:s002205311930050x
    DOI: 10.1016/j.jet.2019.05.003
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    1. Michel Verlaine, 2022. "Behavioral finance and the architecture of the asset management industry," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1454-1476, December.

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    More about this item

    Keywords

    Ambiguity; Wealth effects; Absolute and relative attitudes;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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