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Comment on “A theoretical foundation of ambiguity measurement” [J. Econ. Theory 187 (2020) 105001]

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  • Fu, Ruonan
  • Melenberg, Bertrand
  • Schweizer, Nikolaus

Abstract

In this paper, we study asymptotic expansions for distorted probabilities under ambiguity, revisiting the framework and analysis of Izhakian (2020b). We argue that the first order terms in these expansions need to be corrected and provide alternatives. We also revisit later results in this paper on the separation of ambiguity and ambiguity attitudes. We argue that a crucial lemma is flawed implying that Izhakian's ambiguity measure ℧2 is not an equivalent way of representing the preferences it is supposed to represent.

Suggested Citation

  • Fu, Ruonan & Melenberg, Bertrand & Schweizer, Nikolaus, 2023. "Comment on “A theoretical foundation of ambiguity measurement” [J. Econ. Theory 187 (2020) 105001]," Journal of Economic Theory, Elsevier, vol. 207(C).
    • Handle: RePEc:eee:jetheo:v:207:y:2023:i:c:s0022053122001636
    DOI: 10.1016/j.jet.2022.105573
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    References listed on IDEAS

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    1. Nicholas Barberis & Ming Huang, 2008. "Stocks as Lotteries: The Implications of Probability Weighting for Security Prices," American Economic Review, American Economic Association, vol. 98(5), pages 2066-2100, December.
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    5. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    6. Lars Peter Hansen & Thomas J Sargent, 2014. "Robust Control and Model Uncertainty," World Scientific Book Chapters, in: UNCERTAINTY WITHIN ECONOMIC MODELS, chapter 5, pages 145-154, World Scientific Publishing Co. Pte. Ltd..
    7. Izhakian, Yehuda, 2020. "A theoretical foundation of ambiguity measurement," Journal of Economic Theory, Elsevier, vol. 187(C).
    8. Izhakian, Yehuda & Yermack, David, 2017. "Risk, ambiguity, and the exercise of employee stock options," Journal of Financial Economics, Elsevier, vol. 124(1), pages 65-85.
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    11. Izhakian, Yehuda, 2017. "Expected utility with uncertain probabilities theory," Journal of Mathematical Economics, Elsevier, vol. 69(C), pages 91-103.
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    More about this item

    Keywords

    Ambiguity; Model uncertainty; Probability weighting;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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