Ambiguity Models and the Machina Paradoxes
Machina (2009) introduced two examples that falsify Choquet expected utility, presently one of the most popular models of ambiguity. This article shows that Machina's examples falsify not only the model mentioned, but also four other popular models for ambiguity of the literature, namely maxmin expected utility, variational preferences, α-maxmin, and the smooth model of ambiguity aversion. Thus, Machina's examples pose a challenge to most of the present field of ambiguity. Finally, the paper discusses how an alternative representation of ambiguity-averse preferences works to accommodate the Machina paradoxes and what drives the results. (JEL D81)
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 101 (2011)
Issue (Month): 4 (June)
|Contact details of provider:|| Web page: https://www.aeaweb.org/aer/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
References listed on IDEAS
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.:
- Nicolas Treich, 2008.
"The Value of a Statistical Life under Ambiguity Aversion,"
CESifo Working Paper Series
2291, CESifo Group Munich.
- Treich, Nicolas, 2010. "The value of a statistical life under ambiguity aversion," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 15-26, January.
- TREICH Nicolas, 2008. "The value of a Statistical Life under Ambiguity Aversion," LERNA Working Papers 08.05.249, LERNA, University of Toulouse.
- Alain Chateauneuf & Rose Anne Dana & Jean-Marc Tallon, 2002.
"Diversification, convex preferences and non-empty core in the Choquet expected utility model,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
- Jean-Marc Tallon & Alain Chateauneuf, 2002. "Diversification, convex preferences and non-empty core in the Choquet expected utility model," Economic Theory, Springer, vol. 19(3), pages 509-523.
- Marciano Siniscalchi, 2009.
"Vector Expected Utility and Attitudes Toward Variation,"
Econometric Society, vol. 77(3), pages 801-855, 05.
- Marciano Siniscalchi, 2007. "Vector Expected Utility and Attitudes toward Variation," Discussion Papers 1455, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004.
"Ambiguity Aversion, Robustness, and the Variational Representation of Preferences,"
Carlo Alberto Notebooks
12, Collegio Carlo Alberto, revised 2006.
- Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
- Peter Wakker & Daniel Deneffe, 1996. "Eliciting von Neumann-Morgenstern Utilities When Probabilities Are Distorted or Unknown," Management Science, INFORMS, vol. 42(8), pages 1131-1150, August.
- Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
- Olivier L’Haridon & Lætitia Placido, 2010.
"Betting on Machina’s reflection example: an experiment on ambiguity,"
Theory and Decision,
Springer, vol. 69(3), pages 375-393, September.
- L’Haridon, Olivier & Placido, Lætitia, 2008. "Betting on Machina's reflection example: an experiment on ambiguity," Les Cahiers de Recherche 909, HEC Paris.
- Lars Peter Hansen, 2007. "Beliefs, Doubts and Learning: Valuing Economic Risk," NBER Working Papers 12948, National Bureau of Economic Research, Inc.
- Aurelien Baillon & Olivier L'Haridon & Laetitia Placido, 2011. "Ambiguity Models and the Machina Paradoxes," American Economic Review, American Economic Association, vol. 101(4), pages 1547-60, June.
- Peter Klibanoff, 2001. "Stochastically independent randomization and uncertainty aversion," Economic Theory, Springer, vol. 18(3), pages 605-620.
- Lars Peter Hansen, 2007. "Beliefs, Doubts and Learning: Valuing Macroeconomic Risk," American Economic Review, American Economic Association, vol. 97(2), pages 1-30, May.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:101:y:2011:i:4:p:1547-60. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.