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Ambiguity and uncertainty in Ellsberg and Shackle

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  • Marcello Basili
  • Carlo Zappia

Abstract

This paper argues that the similarities between Ellsberg's and Shackle's frameworks for discussing the limits of the probabilistic approach to decision theory are more important than usually admitted. The paper discusses the grounds on which the ambiguity surrounding the decision-maker in Ellsberg's urn experiments can be deemed analogous to the uncertainty faced by Shackle's entrepreneur taking 'crucial decisions'. The two authors' insights are assessed, and special attention is paid to the criteria for decision under uncertainty they put forward. The paper establishes a link between Ellsberg's and Shackle's perspectives and the non-additive probability approach of Gilboa and Schmeidler, an approach that offers an alternative to standard probability calculus, which can be of use to analyse both ambiguity and uncertainty. The comparison between Ellsberg and Shackle draws on an interpretation of Keynes's Treatise on Probability emphasising Keynes's rejection of both well-defined probability functions and maximisation as a guide to human conduct. It is shown that Keynes's viewpoint implies a reconsideration of the boundaries of probability theory that is in the same vein of Ellsberg's and Shackle's concern in the years of the consolidation of Savage's new probabilistic mainstream. Copyright The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/cje/bep008
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Bibliographic Info

Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

Volume (Year): 34 (2010)
Issue (Month): 3 ()
Pages: 449-474

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Handle: RePEc:oup:cambje:v:34:y:2010:i:3:p:449-474

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  1. Runde, Jochen, 1990. "Keynesian Uncertainty and the Weight of Arguments," Economics and Philosophy, Cambridge University Press, vol. 6(02), pages 275-292, October.
  2. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  3. Quiggin, J. & Kelsey, D., 1991. "Theories of Choice Under Ignorance and Uncertainty," Discussion Papers 91-17, Department of Economics, University of Birmingham.
  4. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  6. 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.
  7. Anand, Paul, 1991. "The Nature of Rational Choice and The Foundations of Statistics," Oxford Economic Papers, Oxford University Press, vol. 43(2), pages 199-216, April.
  8. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, vol. 63(6), pages 1255-80, November.
  9. Lawson, Tony, 1985. "Uncertainty and Economic Analysis," Economic Journal, Royal Economic Society, vol. 95(380), pages 909-27, December.
  10. Kelsey, D., 1992. "Maxmin Expected Utility and Weight of Evidence," Discussion Papers 92-20, Department of Economics, University of Birmingham.
  11. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  12. Lachmann, Ludwig M, 1976. "From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society," Journal of Economic Literature, American Economic Association, vol. 14(1), pages 54-62, March.
  13. Itzhak Gilboa & David Schmeidler, 1992. "Additive Representation of Non-Additive Measures and the Choquet Integral," Discussion Papers 985, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  15. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
  16. Runde, Jochen, 1994. "Keynesian Uncertainty and Liquidity Preference," Cambridge Journal of Economics, Oxford University Press, vol. 18(2), pages 129-44, April.
  17. Kelsey, D., 1991. "Choice Under Partial Uncertainty," Discussion Papers 91-19, Department of Economics, University of Birmingham.
  18. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October.
  19. Sujoy Mukerji, 1996. "Understanding the nonadditive probability decision model (*)," Economic Theory, Springer, vol. 9(1), pages 23-46.
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Cited by:
  1. Carlo Zappia, 2012. "Re-reading Keynes after the crisis: probability and decision," Department of Economics University of Siena 646, Department of Economics, University of Siena.
  2. Élise PAYZAN LE NESTOUR, 2010. "Bayesian Learning in UnstableSettings: Experimental Evidence Based on the Bandit Problem," Swiss Finance Institute Research Paper Series 10-28, Swiss Finance Institute.
  3. Aldred, Jonathan, 2013. "Justifying precautionary policies: Incommensurability and uncertainty," Ecological Economics, Elsevier, vol. 96(C), pages 132-140.

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