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Ambiguity, Data and Preferences for Information - A Case-Based Approach

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  • Ani Guerdjikova
  • Jürgen Eichberger

    ()
    (THEMA, Universite de Cergy-Pontoise and THEMA
    University of Heidelberg)

Abstract

In this paper we suggest a behavioral approach to decision making under ambiguity based on available information. A decision situation is characterized by a set of actions, a set of outcomes, and data consisting of action-outcome pairs. Decision-makers express preferences over actions and data sets. We derive a representation of preferences, which separates utility and beliefs. While the utility function is purely subjective, the beliefs of the decision maker combine objective characteristics of the data (number and frequency of observations) with subjective features of the decision maker (similarity of observations and perceived ambiguity). We identify the subjectively perceived degree of ambiguity and separate it into ambiguity due to a limited number of observations and ambiguity due to data heterogeneity. We also determine the decision maker’s attitude towards ambiguity. The special case of no ambiguity represents beliefs as similarity-weighted frequencies and provides a behavioral foundation for Billot, Gilboa, Samet and Schmeidler’s (2005) representation.

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Bibliographic Info

Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2012-45 Classification-Jel.

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Date of creation: 2012
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Handle: RePEc:ema:worpap:2012-45

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  1. Chateauneuf, Alain & Eichberger, Jürgen & Grant, Simon, 2003. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Sonderforschungsbereich 504 Publications 03-10, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  2. Itzhak Gilboa & Offer Lieberman & David Schmeidler, 2004. "Empirical Similarity," Levine's Bibliography 122247000000000684, UCLA Department of Economics.
  3. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  4. Thibault Gajdos & Takashi Hayashi & Jean-Marc Tallon & Jean-Christophe Vergnaud, 2006. "Attitude toward imprecise information," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00130179, HAL.
  5. Eichberger, Jürgen & Guerdjikova, Ani, 2010. "Case-based belief formation under ambiguity," Mathematical Social Sciences, Elsevier, vol. 60(3), pages 161-177, November.
  6. Ani Guerdjikova & Jürgen Eichberger, 2012. "Ambiguity, Data and Preferences for Information - A Case-Based Approach," THEMA Working Papers 2012-45 Classification-Je, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  7. Antoine Billot & Itzhak Gilboa & Dov Samet & David Schmeidler, 2005. "Probabilities as Similarity-Weighted Frequencies," Econometrica, Econometric Society, vol. 73(4), pages 1125-1136, 07.
  8. David Schmeidler, 2000. "Utility in Case-Based Decision Theory," Working Papers 00-06, Ohio State University, Department of Economics.
  9. Ayala Arad & Gabrielle Gayer, 2012. "Imprecise Data Sets as a Source of Ambiguity: A Model and Experimental Evidence," Management Science, INFORMS, vol. 58(1), pages 188-202, January.
  10. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October.
  11. Larry Epstein & Martin Schneider, 2006. "Learning Under Ambiguity," RCER Working Papers 527, University of Rochester - Center for Economic Research (RCER).
  12. Grant, Simon & Kajii, Atsushi & Polak, Ben, 1998. "Intrinsic Preference for Information," Journal of Economic Theory, Elsevier, vol. 83(2), pages 233-259, December.
  13. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
  14. Hume, David, 1758. "An Equiry Concerning Human Understanding," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number hume1758.
  15. Manski, Charles F., 2000. "Identification problems and decisions under ambiguity: Empirical analysis of treatment response and normative analysis of treatment choice," Journal of Econometrics, Elsevier, vol. 95(2), pages 415-442, April.
  16. Gilboa,Itzhak & Schmeidler,David, 2001. "A Theory of Case-Based Decisions," Cambridge Books, Cambridge University Press, number 9780521003117, December.
  17. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
  18. David S. Ahn, 2008. "Ambiguity Without a State Space," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 3-28.
  19. Jurgen Eichberger & Simon Grant & David Kelsey, 2006. "Differentiating Ambiguity: A Comment," Discussion Papers 0606, Exeter University, Department of Economics.
  20. Truman F. Bewley, 1986. "Knightian Decision Theory: Part 1," Cowles Foundation Discussion Papers 807, Cowles Foundation for Research in Economics, Yale University.
  21. Jürgen Eichberger & Ani Guerdjikova, 2012. "Technology Adoption And Adaptation To Climate Change — A Case-Based Approach," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1250007-1-1.
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Cited by:
  1. Ani Guerdjikova & Jürgen Eichberger, 2012. "Ambiguity, Data and Preferences for Information - A Case-Based Approach," THEMA Working Papers 2012-45 Classification-Je, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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