A Bayesian Approach to Uncertainty Aversion
AbstractThe 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 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 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
Contact details of provider:
Ellsberg Paradox; rule rationality; ambiguity aversion; risk aversionm subjective probability; reduction of compound lotteries;
Other versions of this item:
- 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.
- 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," 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)
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.:
- Uzi Segal, 1985.
"The Ellsberg Paradox and Risk Aversion: An Anticipated Utility Approach,"
UCLA Economics Working Papers
362, UCLA Department of Economics.
- Segal, Uzi, 1987. "The Ellsberg Paradox and Risk Aversion: An Anticipated Utility Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 175-202, February.
- Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
- Schmeidler, David, 1989.
"Subjective Probability and Expected Utility without Additivity,"
Econometric Society, vol. 57(3), pages 571-87, May.
- David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
- Machina,Mark & Schmeidler,David, 1991.
"A more robust definition of subjective probability,"
Discussion Paper Serie A
365, University of Bonn, Germany.
- Machina, Mark J & Schmeidler, David, 1992. "A More Robust Definition of Subjective Probability," Econometrica, Econometric Society, vol. 60(4), pages 745-80, July.
- Mark J. Machina & David Schmeidler, 1990. "A More Robust Definition of Subjective Probability," Discussion Paper Serie A 306, University of Bonn, Germany.
- Camerer, Colin & Weber, Martin, 1992. " Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-70, October.
- Sarin, Rakesh K & Wakker, Peter, 1992. "A Simple Axiomatization of Nonadditive Expected Utility," Econometrica, Econometric Society, vol. 60(6), pages 1255-72, November.
- Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
- Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Sarin, Rakesh & Wakker, Peter, 1997.
"A Single-Stage Approach to Anscombe and Aumann's Expected Utility,"
Review of Economic Studies,
Wiley Blackwell, vol. 64(3), pages 399-409, July.
- Sarin, R. & Wakker, P.P., 1996. "A Single-Stage Approach to Anscombe and Aumann's Expected Utility," Discussion Paper 1996-45, Tilburg University, Center for Economic Research.
- Aumann, Robert J., 1997. "Rationality and Bounded Rationality," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 2-14, October.
- Larry Epstein, 1997. "Uncertainty Aversion," Working Papers epstein-97-01, University of Toronto, Department of Economics.
- Hoffman, Elizabeth & McCabe, Kevin & Smith, Vernon L, 1996. "Social Distance and Other-Regarding Behavior in Dictator Games," American Economic Review, American Economic Association, vol. 86(3), pages 653-60, June.
- Pierre Fleckinger, 2007. "On Multiagent Moral Hazard under Technological Uncertainty," Working Papers hal-00240716, HAL.
- David Cooper & David Johnson, 2013. "Ambiguity in Performance Pay: An Online Experiment," Working Papers 2013-27, Department of Economics, University of Calgary, revised 14 Nov 2013.
- Christoph Kuzmics, 2012. "Inferring preferences from choices under uncertainty," Working Papers 462, Bielefeld University, Center for Mathematical Economics.
- Rasmusen, Eric, 2010.
"Career concerns and ambiguity aversion,"
Elsevier, vol. 108(2), pages 175-177, August.
- Al-Najjar, Nabil I. & Weinstein, Jonathan, 2013. "A Bayesian Model of Knightian Uncertainty," Economics Series 300, Institute for Advanced Studies.
- Zvi Safra & Uzi Segal, 2005. "Are Universal Preferences Possible? Calibration Results for Non-Expected Utility Theories," Boston College Working Papers in Economics 633, Boston College Department of Economics.
- Yang, Chun-Lei & Yao, Lan, 2011. "Ellsberg Paradox and Second-order Preference Theories on Ambiguity: Some New Experimental Evidence," MPRA Paper 28531, University Library of Munich, Germany.
- Gregory DeAngelo & Gary Charness, 2012. "Deterrence, expected cost, uncertainty and voting: Experimental evidence," Journal of Risk and Uncertainty, Springer, vol. 44(1), pages 73-100, February.
- Alfred Müller & Marco Scarsini, 2002. "Even Risk-Averters may Love Risk," Theory and Decision, Springer, vol. 52(1), pages 81-99, February.
- Mark Dean & Pietro Ortoleva, 2012. "Allais, Ellsberg, and Preferences for Hedging," Working Papers 2012-2, Brown University, Department of Economics.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael Peters).
If references are entirely missing, you can add them using this form.