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Affective Decision Making and the Ellsberg Paradox

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    Abstract

    We characterize, in the framework for variational preferences, the affective decision making model of choice under risk and uncertainty introduced by Bracha and Brown (2007). This characterization (i) provides a rigorus decision-theoretic foundation for affective decision making, (ii) offers an axiomatic explanation for ambiguity-seeking in the Ellsberg Paradox and (iii) suggests a dual representation of ADM games in terms of the Legendre-Fenchel conjugate.

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    File URL: http://cowles.econ.yale.edu/P/cd/d16b/d1667.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1667.

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    Length: 8 pages
    Date of creation: Jun 2008
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    Handle: RePEc:cwl:cwldpp:1667

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    Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

    Related research

    Keywords: Ellsberg paradox; Schmeidler's axiom; Affective decision making; Variational preferences; Legendre-Fenchel conjugate;

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    1. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
    2. Tomasz Strzalecki, 2011. "Axiomatic Foundations of Multiplier Preferences," Econometrica, Econometric Society, vol. 79(1), pages 47-73, 01.
    3. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Carlo Alberto Notebooks 12, Collegio Carlo Alberto, revised 2006.
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