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Choice deferral and ambiguity aversion

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Author Info

  • Kopylov, Igor

    ()
    (Department of Economics and Institute for Mathematical Behavioral Sciences, University of California, Irvine)

Abstract

When confronted with uncertain prospects, people often exhibit both choice deferral and Ellsberg-type ambiguity aversion. This paper obtains a joint representation for these behavioral phenomena. The decision maker as portrayed by my model is willing to choose an uncertain prospect f over g rather than to defer this choice if and only if the expected utility of f is greater that or equal to the expected utility of g for every probability measure in a convex and closed set Delta. This set is interpreted as a collection of the decision maker's possible future beliefs. When choices cannot be deferred, the decision maker evaluates every uncertain prospect via an epsilon-mixture of the least favorable element in the set Delta and her current probabilistic belief p in Delta. All components of my model are derived from observable preferences in an essentially unique way.

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File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20090199/2519/131
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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 4 (2009)
Issue (Month): 2 (June)
Pages:

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Handle: RePEc:the:publsh:498

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Web page: http://econtheory.org

Related research

Keywords: Choice deferral; ambiguity aversion; epsilon contamination; multiple priors model; subjective probability; Ellsberg Paradox;

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Cited by:
  1. Hill, Brian, 2011. "Deferral, incomplete preferences and confidence," Les Cahiers de Recherche 940, HEC Paris.
  2. Evren, Özgür & Ok, Efe A., 2011. "On the multi-utility representation of preference relations," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 554-563.
  3. Hill, Brian, 2013. "Confidence and decision," Games and Economic Behavior, Elsevier, vol. 82(C), pages 675-692.
  4. Cerreia-Vioglio, Simone & Maccheroni, Fabio & Marinacci, Massimo & Montrucchio, Luigi, 2013. "Ambiguity and robust statistics," Journal of Economic Theory, Elsevier, vol. 148(3), pages 974-1049.
    • Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Marcello Basili, 2013. "Ellsberg Rules and Keynes’s State of Long-Term Expectation: More Than an Accordance," Department of Economics University of Siena 685, Department of Economics, University of Siena.
  6. Faro, José Heleno & Lefort, Jean Philippe, 2013. "Dynamic Objective and Subjective Rationality," Insper Working Papers wpe_312, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  7. Stergios Athanassoglou, 2013. "Robust Multidimensional Welfare Comparisons: One Vector of Weights, One Vote," Working Papers 2013.40, Fondazione Eni Enrico Mattei.
  8. Özgür Evren, 2012. "Scalarization Methods and Expected Multi-Utility Representations," Working Papers w0174, Center for Economic and Financial Research (CEFIR).
  9. Athanassoglou, Stergios, 2013. "Multidimensional welfare rankings," MPRA Paper 51642, University Library of Munich, Germany.

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