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Recursive Ambiguity and Machina’s Examples

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  • David Dillenberger

    ()
    (Department of Economics, University of Pennsylvania)

  • Uzi Segal

    ()
    (Department of Economics, Boston College)

Abstract

Machina (2009, 2012) lists a number of situations where standard models of ambiguity aversion are unable to capture plausible features of ambiguity attitudes. Most of these problems arise in choice over prospects involving three or more outcomes. We show that the recursive non-expected utility model of Segal (1987) is rich enough to accommodate all these situations.

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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-021.

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Length: 12 pages
Date of creation: 20 May 2012
Date of revision:
Handle: RePEc:pen:papers:12-021

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Keywords: Ambiguity; Ellsberg paradox; Choquet expected utility; recursive non-expected utility;

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  1. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2002. "A smooth model of decision making under ambiguity," ICER Working Papers - Applied Mathematics Series, ICER - International Centre for Economic Research 11-2003, ICER - International Centre for Economic Research, revised Apr 2003.
  2. Aurelien Baillon & Olivier L'Haridon & Laetitia Placido, 2011. "Ambiguity Models and the Machina Paradoxes," American Economic Review, American Economic Association, American Economic Association, vol. 101(4), pages 1547-60, June.
  3. Yoram Halevy, 2007. "Ellsberg Revisited: An Experimental Study," Econometrica, Econometric Society, Econometric Society, vol. 75(2), pages 503-536, 03.
  4. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 3(4), pages 323-343, December.
  5. Dillenberger, David, 2008. "Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior," MPRA Paper 8342, University Library of Munich, Germany.
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