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Recursive Ambiguity And Machina'S Examples

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  • David Dillenberger
  • Uzi Segal

Abstract

Machina (American Economic Review 99 (2009), 385–392; American Economic Review 104 (2014), 3814–40) lists a number of situations where Choquet expected utility, as well as other known models of ambiguity aversion, cannot capture plausible features of ambiguity attitudes. Most of these problems arise in choice over prospects involving three or more outcomes. We show that the recursive nonexpected utility model of Segal (International Economic Review 28 (1987), 175–202) is rich enough to accommodate all these situations and, moreover, that this can be done using the same functional form for all situations.

Suggested Citation

  • David Dillenberger & Uzi Segal, 2015. "Recursive Ambiguity And Machina'S Examples," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(1), pages 55-61, February.
    • Handle: RePEc:wly:iecrev:v:56:y:2015:i:1:p:55-61
    DOI: 10.1111/iere.12094
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    References listed on IDEAS

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    1. Dillenberger, David, 2008. "Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior," MPRA Paper 8342, University Library of Munich, Germany.
    2. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
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    5. Segal, Uzi, 1990. "Two-Stage Lotteries without the Reduction Axiom," Econometrica, Econometric Society, vol. 58(2), pages 349-377, March.
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    Cited by:

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    3. Adam Dominiak & Jean-Philippe Lefort, 2021. "Ambiguity and Probabilistic Information," Management Science, INFORMS, vol. 67(7), pages 4310-4326, July.

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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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