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Capacities And Probabilistic Beliefs: A Precarious Coexistence

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  • Klaus Nehring
  • Michael Magill
  • Julian R. Betts

    (Department of Economics, University of California Davis)

Abstract

This paper raises the problem of how to define revealed probabilistic beliefs in the context of the capacity/Choquet Expected Utility model. At the center of the analysis is a decision-theoretically axiomatized definition of ""revealed unambiguous events."" The definition is shown to impose surprisingly strong restrictions on the underlying capacity and on the set of unambiguous events; in particular, the latter is always an algebra. Alternative weaker definitions violate even minimal criteria of adequacy. Rather than finding fault with the proposed definition, we argue that our results indicate that the CEU model is epistemically restrictive, and point out that analogous problems do not arise within the Maximin Expected Utility model.

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Bibliographic Info

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 978.

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Length: 26
Date of creation: 08 Jan 2003
Date of revision:
Handle: RePEc:cda:wpaper:97-8

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  1. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  2. Sarin, R. & Wakker, P.P., 1996. "Revealed likelihood and knightian uncertainty," Discussion Paper 1996-59, Tilburg University, Center for Economic Research.
  3. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  4. Eichberger, Jurgen & Kelsey, David, 1996. "Uncertainty Aversion and Preference for Randomisation," Journal of Economic Theory, Elsevier, vol. 71(1), pages 31-43, October.
  5. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
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