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Ambiguity revealed

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Author Info

  • Ralph Bayer
  • Subir Bose
  • Matthew Polisson

    ()
    (Institute for Fiscal Studies and University of Leicester)

  • Ludovic Renou

Abstract

We derive necessary and sufficient conditions for data sets composed of state-contingent prices and consumption to be consistent with two prominent models of decision making under uncertainty: variational preferences and smooth ambiguity. The revealed preference conditions for subjective expected utility, maxmin expected utility, and multiplier preferences are characterised as special cases. We implement our tests on data from a portfolio choice experiment.

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Bibliographic Info

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W13/05.

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Date of creation: Mar 2013
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Handle: RePEc:ifs:ifsewp:13/05

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Related research

Keywords: ambiguity; expected utility; maxmin; revealed preference; smooth; uncertainty; variational;

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References

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  1. Cherchye, L.J.H. & Rock, B. de & Vermeulen, F.M.P., 2007. "The collective model of household consumption: A nonparametric characterization," Open Access publications from Tilburg University urn:nbn:nl:ui:12-194157, Tilburg University.
  2. Francoise Forges & Enrico Minelli, 2006. "Afriat’s Theorem for General Budget Sets," CESifo Working Paper Series 1703, CESifo Group Munich.
  3. Wakker,Peter P., 2010. "Prospect Theory," Cambridge Books, Cambridge University Press, number 9780521765015, November.
  4. Hanoch, Giora & Rothschild, Michael, 1972. "Testing the Assumptions of Production Theory: A Nonparametric Approach," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 256-75, March-Apr.
  5. Martin Browning & Laura Blow, 2006. "Revealed Preference Analysis of Characteristics Models," Economics Series Working Papers 282, University of Oxford, Department of Economics.
  6. David Ahn & Syngjoo Choi & Douglas Gale & Shachar Kariv, 2008. "Estimating Ambiguity Aversion in a Portfolio Choice Experiment," Levine's Working Paper Archive 122247000000001989, David K. Levine.
  7. Tomasz Strzalecki, 2011. "Axiomatic Foundations of Multiplier Preferences," Levine's Working Paper Archive 786969000000000126, David K. Levine.
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Cited by:
  1. Matthew Polisson & John K.-H. Quah, 2013. "Revealed preference tests under risk and uncertainty," Discussion Papers in Economics 13/24, Department of Economics, University of Leicester.

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