A Bayesian Approach to Uncertainty Aversion
Abstract
The Ellsberg Paradox demonstrates that people's belief over uncertain events might not be representable by subjective probability. We show that if a risk averse decision maker, who has a well defined Bayesian prior, perceives an Ellsberg type decision problem as possibly composed of a bundle of several positively correlated problems - she will be uncertainty averse. We generalize this argument and derive sufficient conditions for uncertainty aversion.Download Info
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Paper provided by Microeconomics.ca Website in its series Micro Theory Working Papers with number halevy-04-02-13-07-48-37.Length: 0 pages
Date of creation: 13 Feb 2004
Date of revision: 08 Jun 2008
Handle: RePEc:ubc:pmicro:halevy-04-02-13-07-48-37
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Related research
Keywords: Ellsberg Paradox; rule rationality; ambiguity aversion; risk aversionm subjective probability; reduction of compound lotteries;Other versions of this item:
- Yoram Halevy & Vincent Feltkamp, 2005. "A Bayesian Approach to Uncertainty Aversion," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 449-466.
- Vincent Feltkamp & Yoram Halevy, 1999. "- A Bayesian Approach To Uncertainty Aversion," Working Papers. Serie AD 1999-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Yoram Halevy & Vincent Feltkamp, . "A Bayesian Approach to Uncentainty Aversion," CARESS Working Papres 99-03, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Vincent Feltkamp & Yoram Halevy, 2000. "A Bayesian Approach to Uncertainty Aversion," Econometric Society World Congress 2000 Contributed Papers 1125, Econometric Society.
- Yoram Halevy & Vincent Feltkamp, . "A Bayesian Approach to Uncentainty Aversion," Penn CARESS Working Papers f17f3e2c6ad93e4b53fd58fc9, Penn Economics Department.
- 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-2004-02-15 (All new papers)
- NEP-MIC-2004-02-15 (Microeconomics)
- NEP-RMG-2004-02-15 (Risk Management)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Yoram Halevy, 2007.
"Ellsberg Revisited: An Experimental Study,"
Econometrica,
Econometric Society, vol. 75(2), pages 503-536, 03.
- Halevy, Yoram, 2005. "Ellsberg Revisited: an Experimental Study," Micro Theory Working Papers halevy-05-07-26-11-51-13, Microeconomics.ca Website, revised 07 Jun 2008.
- Mark Dean & Pietro Ortoleva, 2012. "Allais, Ellsberg, and Preferences for Hedging," Working Papers 2012-2, Brown University, Department of Economics.
- Alfred Müller & Marco Scarsini, 2002. "Even Risk-Averters may Love Risk," Theory and Decision, Springer, vol. 52(1), pages 81-99, February.
- Rick Harbaugh, 2005. "Prospect Theory or Skill Signaling?," Working Papers 2005-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Christoph Kuzmics, 2012. "Inferring preferences from choices under uncertainty," Working Papers 462, Bielefeld University, Center for Mathematical Economics.
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