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Objective Imprecise Probabilistic Information, Second Order Beliefs and Ambiguity Aversion: an Axiomatization

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Author Info
Raphaël Giraud () (CRESE - Centre de recherche sur les stratégies économiques - Université de Franche-Comté, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Panthéon-Sorbonne - Paris I)

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Abstract

We axiomatize a model of decision under objective ambiguity or imprecise risk. The decision maker forms a subjective (non necessarily additive) belief aboutthe likelihood of probability distributions and computes the average expected utility of a given act with respect to this second order belief. We show that ambiguity aversion like the one revealed by the Ellsberg paradox requires that second order beliefs be nonadditive. Somespecial cases of the model are examined and different forms of ambiguity aversion are characterized.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00102346_v1.

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Date of creation: 29 Sep 2006
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Handle: RePEc:hal:cesptp:halshs-00102346_v1

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Related research
Keywords: Imprecise probabilistic information; second order beliefs; non-additive probabilities; ambiguity aversion; Ellsberg paradox; Choquet integral;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wojciech Olszewski, 2007. "Preferences Over Sets of Lotteries," Review of Economic Studies, Blackwell Publishing, vol. 74(2), pages 567-595, 04. [Downloadable!] (restricted)
  2. Tapking, Jens, 2004. "Axioms for preferences revealing subjective uncertainty and uncertainty aversion," Journal of Mathematical Economics, Elsevier, vol. 40(7), pages 771-797, November. [Downloadable!] (restricted)
  3. Gajdos, T. & Hayashi, T. & Tallon, J.-M. & Vergnaud, J.-C., 2008. "Attitude toward imprecise information," Journal of Economic Theory, Elsevier, vol. 140(1), pages 27-65, May. [Downloadable!] (restricted)
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  4. Gajdos, Thibault & Tallon, Jean-Marc & Vergnaud, Jean-Christophe, 2004. "Decision making with imprecise probabilistic information," Journal of Mathematical Economics, Elsevier, vol. 40(6), pages 647-681, September. [Downloadable!] (restricted)
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  5. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May. [Downloadable!] (restricted)
  6. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January. [Downloadable!] (restricted)
  7. Epstein, Larry G, 1999. "A Definition of Uncertainty Aversion," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 579-608, July. [Downloadable!] (restricted)
  8. 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. [Downloadable!] (restricted)
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  9. Massimo Marinacci & Paolo Ghirardato, 2001. "Risk, ambiguity, and the separation of utility and beliefs," ICER Working Papers - Applied Mathematics Series 21-2001, ICER - International Centre for Economic Research. [Downloadable!]
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  1. Thibault Gajdos & Takashi Hayashi & Jean-Marc Tallon & Jean-Christophe Vergnaud, 2006. "Attitude toward imprecise information," Cahiers de la Maison des Sciences Economiques v06081, Université Panthéon-Sorbonne (Paris 1). [Downloadable!]
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