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Ambiguity and uncertainty in Ellsberg and Shackle

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Author Info
Marcello Basili ()
Carlo Zappia ()

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Abstract

This paper argues that Ellsberg’s and Shackle’s frameworks for discussing the limits of the (subjective) probabilistic approach to decision theory are not as different as they may appear. To stress the common elements in their theories Keynes’s Treatise on Probability provides an essential starting point. Keynes’s rejection of well-defined probability functions, and of maximisation as a guide to human conduct, is shown to imply a reconsideration of what probability theory can encompass, that is in the same vein of Ellsberg’s and Shackle’s concern in the years of the consolidation of Savage’s new probabilistic mainstream. The parallel between Keynes and the two decision theorists is drawn by means of a particular assessment of Shackle’s theory of decision, namely, it is interpreted in the light of Ellsberg’s doctoral dissertation. In this thesis, published only as late as 2001, Ellsberg developed the details and devised the philosophical background of his criticism of Savage as first put forward in the famed 1961 QJE article. The paper discusses the grounds on which the ambiguity surrounding the decision maker in Ellsberg’s urn experiment can be deemed analogous to the uncertainty faced by Shackle’s entrepreneur taking “unique decisions.” The paper argues also that the insights at the basis of the work of both Shackle and Ellsberg, as well as the criteria for decision under uncertainty they put forward, are relevant to understand the development of modern decision theory.

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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 460.

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Date of creation: Sep 2005
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Handle: RePEc:usi:wpaper:460

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Related research
Keywords: uncertainty weight of argument non-additive probability

Find related papers by JEL classification:
B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior

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  1. Kelsey, David, 1993. "Choice under Partial Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(2), pages 297-308, May. [Downloadable!] (restricted)
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  3. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April. [Downloadable!] (restricted)
  4. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  5. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, vol. 63(6), pages 1255-80, November. [Downloadable!] (restricted)
  6. Anand, Paul, 1991. "The Nature of Rational Choice and The Foundations of Statistics," Oxford Economic Papers, Oxford University Press, vol. 43(2), pages 199-216, April. [Downloadable!] (restricted)
  7. Lawson, Tony, 1985. "Uncertainty and Economic Analysis," Economic Journal, Royal Economic Society, vol. 95(380), pages 909-27, December. [Downloadable!] (restricted)
  8. Lachmann, Ludwig M, 1976. "From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society," Journal of Economic Literature, American Economic Association, vol. 14(1), pages 54-62, March. [Downloadable!] (restricted)
  9. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May. [Downloadable!] (restricted)
  10. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December. [Downloadable!] (restricted)
  11. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  12. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January. [Downloadable!] (restricted)
  13. Kelsey, David, 1994. "Maxmin Expected Utility and Weight of Evidence," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 425-44, July. [Downloadable!] (restricted)
  14. Runde, Jochen, 1994. "Keynesian Uncertainty and Liquidity Preference," Cambridge Journal of Economics, Oxford University Press, vol. 18(2), pages 129-44, April.
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