Choices under ambiguity with familiar and unfamiliar outcomes
AbstractThis paper considers a decision-making process under ambiguity in which the decision-maker is supposed to split outcomes between familiar and unfamiliar ones. She is assumed to behave differently with respect to unfamiliar gains, unfamiliar losses and customary (familiar) outcomes. In particular, she is supposed to be pessimistic on gains, optimistic on losses and ambiguity neutral on the familiar outcomes. A generalization of the usual Choquet integral is formalized when the decision-maker holds both capacities and probabilities. A characterization of the decision-maker's behaviour is provided for a specific subset of capacities, in which it is shown that the decision-maker underestimates the unfamiliar outcomes while is linear in probabilities on customary ones.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number b04115.
Length: 11 pages
Date of creation: Oct 2004
Date of revision:
Contact details of provider:
Postal: 106 - 112 boulevard de l'Hôpital, 75647 Paris cedex 13
Phone: 01 44 07 81 00
Fax: 01 44 07 81 09
Web page: http://mse.univ-paris1.fr/
More information through EDIRC
Ambiguity; capacity; Choquet integral; representation theorem; cumulative prospect theory.;
Other versions of this item:
- Marcello Basili & Alain Chateauneuf & Fulvio Fontini, 2005. "Choices Under Ambiguity With Familiar And Unfamiliar Outcomes," Theory and Decision, Springer, vol. 58(2), pages 195-207, 03.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
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.:
- Lattimore, Pamela K. & Baker, Joanna R. & Witte, Ann D., 1992. "The influence of probability on risky choice: A parametric examination," Journal of Economic Behavior & Organization, Elsevier, vol. 17(3), pages 377-400, May.
- Mohammed Abdellaoui, 2000. "Parameter-Free Elicitation of Utility and Probability Weighting Functions," Management Science, INFORMS, vol. 46(11), pages 1497-1512, November.
- Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-89, November.
- Wakker, Peter & Tversky, Amos, 1993. " An Axiomatization of Cumulative Prospect Theory," Journal of Risk and Uncertainty, Springer, vol. 7(2), pages 147-75, October.
- Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, vol. 63(6), pages 1255-80, November.
- Bleichrodt, Han, 2001. " Probability Weighting in Choice under Risk: An Empirical Test," Journal of Risk and Uncertainty, Springer, vol. 23(2), pages 185-98, September.
- Chateauneuf, Alain & Wakker, Peter, 1999.
"An Axiomatization of Cumulative Prospect Theory for Decision under Risk,"
Journal of Risk and Uncertainty,
Springer, vol. 18(2), pages 137-45, August.
- Chateauneuf, A. & Wakker, P., 1998. "An Axiomatization of Cumulative Prospect Theory for Decision Under Risk," Papiers d'Economie MathÃÂ©matique et Applications 98.51, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Amos Tversky & Daniel Kahneman, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Levine's Working Paper Archive
7656, David K. Levine.
- Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
- Camerer, Colin F & Ho, Teck-Hua, 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 167-96, March.
- Dow James & Werlang Sergio Ribeiro Da Costa, 1994.
"Nash Equilibrium under Knightian Uncertainty: Breaking Down Backward Induction,"
Journal of Economic Theory,
Elsevier, vol. 64(2), pages 305-324, December.
- Dow, James & Werlang, Sérgio Ribeiro da Costa, 1992. "Nash equilibrium under knightian uncertainty: breaking-down backward induction," Economics Working Papers (Ensaios Economicos da EPGE) 186, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Michael Kilka & Martin Weber, 2001. "What Determines the Shape of the Probability Weighting Function Under Uncertainty?," Management Science, INFORMS, vol. 47(12), pages 1712-1726, December.
- Schmidt, Ulrich & Traub, Stefan, 2002. " An Experimental Test of Loss Aversion," Journal of Risk and Uncertainty, Springer, vol. 25(3), pages 233-49, November.
- Drazen Prelec, 1998. "The Probability Weighting Function," Econometrica, Econometric Society, vol. 66(3), pages 497-528, May.
- Moshe Levy & Haim Levy, 2002. "Prospect Theory: Much Ado About Nothing?," Management Science, INFORMS, vol. 48(10), pages 1334-1349, October.
- Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
- Han Bleichrodt & Jose Luis Pinto & Peter P. Wakker, 2001. "Making Descriptive Use of Prospect Theory to Improve the Prescriptive Use of Expected Utility," Management Science, INFORMS, vol. 47(11), pages 1498-1514, November.
- Pamela K. Lattimore & Joanna R. Baker & A. Dryden Witte, 1992. "The Influence Of Probability on Risky Choice: A parametric Examination," NBER Technical Working Papers 0081, National Bureau of Economic Research, Inc.
- Nathalie Etchart-Vincent, 2004. "Is Probability Weighting Sensitive to the Magnitude of Consequences? An Experimental Investigation on Losses," Journal of Risk and Uncertainty, Springer, vol. 28(3), pages 217-235, 05.
- Marcello Basili & Carlo Zappia, 2010.
"Ambiguity and uncertainty in Ellsberg and Shackle,"
Cambridge Journal of Economics,
Oxford University Press, vol. 34(3), pages 449-474.
- Xiaoxian Ma & Qingzhen Zhao & Jilin Qu, 2008. "Robust portfolio optimization with a generalized expected utility model under ambiguity," Annals of Finance, Springer, vol. 4(4), pages 431-444, October.
- Fontini, Fulvio & Umgiesser, Georg & Vergano, Lucia, 2010.
"The role of ambiguity in the evaluation of the net benefits of the MOSE system in the Venice lagoon,"
Elsevier, vol. 69(10), pages 1964-1972, August.
- Fulvio Fontini & Georg Umgiesser & Lucia Vergano, 2008. "The Role of Ambiguity in the Evaluation of the Net Benefits of the MOSE System in the Venice Lagoon," "Marco Fanno" Working Papers 0080, Dipartimento di Scienze Economiche "Marco Fanno".
- Basili, Marcello & Chateauneuf, Alain & Fontini, Fulvio, 2008. "Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catastrophic losses," Ecological Economics, Elsevier, vol. 67(3), pages 485-491, October.
- Fontini, Fulvio & Paloscia, Lorenzo, 2007. "The impact of the new investments in combined cycle gas turbine power plants on the Italian electricity price," Energy Policy, Elsevier, vol. 35(9), pages 4671-4676, September.
- José Lara Resende & George Wu, 2010. "Competence effects for choices involving gains and losses," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 109-132, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lucie Label).
If references are entirely missing, you can add them using this form.