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.
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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
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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)
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