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Random ambiguity

Author

Listed:
  • Lu, Jay

    (Department of Economics, UCLA)

Abstract

We introduce a model of random ambiguity aversion. Choice is stochastic due to unobserved shocks to both information and ambiguity aversion. This is modeled as a random set of beliefs in the maxmin expected utility model of Gilboa and Schmeidler (1989). We characterize the model and show that the distribution of ambiguity aversion can be uniquely identified using binary choices. A novel stochastic order on random sets is introduced that characterizes greater uncertainty aversion under stochastic choice. If the set of priors is the Aumann expectation of the random set, then choices satisfy dynamic consistency. This corresponds to an agent who knows the distribution of signals but is uncertain about how to interpret signal realizations. More broadly, the analysis of stochastic properties of random ambiguity attitudes provides a theoretical foundation for the study of models of random non-linear utility.

Suggested Citation

  • Lu, Jay, 2021. "Random ambiguity," Theoretical Economics, Econometric Society, vol. 16(2), May.
    • Handle: RePEc:the:publsh:3810
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    References listed on IDEAS

    as
    1. Mohammed Abdellaoui & Aurelien Baillon & Laetitia Placido & Peter P. Wakker, 2011. "The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation," American Economic Review, American Economic Association, vol. 101(2), pages 695-723, April.
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    More about this item

    Keywords

    Stochastic choice; ambiguity; random utility; updating;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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