Ordering Ambiguous Acts
AbstractWe investigate what it means for one act to be more ambiguous than another. The question is evidently analogous to asking what makes one prospect riskier than another, but beliefs are neither objective nor representable by a unique probability. Our starting point is an abstract class of preferences constructed to be (strictly) partially ordered by a more ambiguity averse relation. First, we define two notions of more ambiguous with respect to such a class. A more ambiguous (I) act makes an ambiguity averse decision maker (DM) worse off but does not affect the welfare of an ambiguity neutral DM. A more ambiguous (II) act adversely affects a more ambiguity averse DM more, as measured by the compensation they require to switch acts. Unlike more ambiguous (I), more ambiguous (II) does not require indifference of ambiguity neutral elements to the acts being compared. Second, we implement the abstract definitions to characterize more ambiguous (I) and (II) for two explicit preference families: Î±-maxmin expected utility and smooth ambiguity. Thirdly, we give applications to the comparative statics of more ambiguous in a standard portfolio problem and a consumption-saving problem.
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 University of Oxford, Department of Economics in its series Economics Series Working Papers with number 553.
Date of creation: 01 Jun 2011
Date of revision:
Ambiguity; Uncertainty; Knightian uncertainty; Ambiguity aversion; Uncertainty aversion; Ellsberg paradox; Comparative statics; Single-crossing; More ambiguous; Portfolio choice;
Find related papers by JEL classification:
- C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-25 (All new papers)
- NEP-HPE-2011-06-25 (History & Philosophy of Economics)
- NEP-UPT-2011-06-25 (Utility Models & Prospect Theory)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jianjun Miao & Neng Wang, 2007.
"Risk, Uncertainty, and Option Exercise,"
Boston University - Department of Economics - Working Papers Series
WP2007-016, Boston University - Department of Economics.
- Jianjun Miao, 2004. "Risk, uncertainty and option exercise," Finance 0410013, EconWPA.
- Jianjun Miao & Neng Wang, 2004. "Risk, Uncertainty, and Option Exercise," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-136, Boston University - Department of Economics.
- Jianjun Miao & Neng Wang, 2010. "Risk, uncertainty,and option exercise," Boston University - Department of Economics - Working Papers Series WP2010-029, Boston University - Department of Economics.
- Loïc Berger, 2011. "Smooth Ambiguity Aversion in the Small and in the Large," Working Papers ECARES ECARES 2011-020, ULB -- Universite Libre de Bruxelles.
- Hackbarth, Dirk & Miao, Jianjun, 2012.
"The dynamics of mergers and acquisitions in oligopolistic industries,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 36(4), pages 585-609.
- Jianjun Miao & Dirk Hackbarth, 2011. "The dynamics of mergers and acquisitions in oligopolistic industries," Boston University - Department of Economics - Working Papers Series WP2011-029, Boston University - Department of Economics.
- Dirk Hackbarth & Jianjun Maio, 2007. "The Dynamics of Mergers and Acquisitions in Oligopolistic Industries," Boston University - Department of Economics - Working Papers Series WP2007-017, Boston University - Department of Economics.
- Tomoki Fujii, 2012.
"Dynamic Poverty Decomposition Analysis: An Application to the Philippines,"
34-2012, Singapore Management University, School of Economics.
- Fujii, Tomoki, 2014. "Dynamic Poverty Decomposition Analysis: An Application to the Philippines," ADBI Working Papers 466, Asian Development Bank Institute.
- Yehuda Izhakian, 2012. "Ambiguity Measurement," Working Papers 12-01, New York University, Leonard N. Stern School of Business, Department of Economics.
- Klibanoff, Peter & Marinacci, Massimo & Mukerji, Sujoy, 2009.
"Recursive smooth ambiguity preferences,"
Journal of Economic Theory,
Elsevier, vol. 144(3), pages 930-976, May.
- Aflaki, Sam, 2013. "The effect of environmental uncertainty on the tragedy of the commons," Games and Economic Behavior, Elsevier, vol. 82(C), pages 240-253.
- Alan Rogers & Matthew Ryan, 2012. "Additivity and Uncertainty," Economics Bulletin, AccessEcon, vol. 32(3), pages 1858-1864.
- Ruffino, Doriana, 2013. "A Robust Capital Asset Pricing Model," Finance and Economics Discussion Series 2014-1, Board of Governors of the Federal Reserve System (U.S.).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Caroline Wise).
If references are entirely missing, you can add them using this form.