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A simple mean–dispersion model of ambiguity attitudes

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  • Schneider, Mark A.
  • Nunez, Manuel A.

Abstract

Several characterizations of ambiguity aversion decompose preferences into the expected utility of an act and an adjustment factor, an ambiguity index, or a dispersion function. In each of these cases, the adjustment factor has very little structure imposed on it, and thus these models provide little guidance as to which function to use from the infinite class of possible alternatives. In this paper, we provide a simple axiomatic characterization of mean–dispersion preferences which uniquely determines a subjective probability distribution over a set of possible priors and which uniquely identifies the dispersion function. We provide an algorithm for determining this subjective probability distribution and the coefficient in the dispersion function from experimental data. We also demonstrate that the model accommodates ambiguity aversion in the Ellsberg paradox.

Suggested Citation

  • Schneider, Mark A. & Nunez, Manuel A., 2015. "A simple mean–dispersion model of ambiguity attitudes," Journal of Mathematical Economics, Elsevier, vol. 58(C), pages 25-31.
    • Handle: RePEc:eee:mateco:v:58:y:2015:i:c:p:25-31
    DOI: 10.1016/j.jmateco.2015.03.002
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    References listed on IDEAS

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    Cited by:

    1. Mark Schneider & Manuel Nunez, 2016. "Mean-Dispersion Preferences with a Specific Dispersion Function," Working Papers 16-10, Chapman University, Economic Science Institute.
    2. Nunez, Manuel & Schneider, Mark, 2019. "Mean-dispersion preferences with a specific dispersion function," Journal of Mathematical Economics, Elsevier, vol. 84(C), pages 195-206.

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