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Subjective Probabilities on Subjectively Unambiguous Events

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  • Epstein, Larry G
  • Zhang, Jiankang

Abstract

This paper suggests a behavioral definition of (subjective) ambiguity in an abstract setting where objects of choice are Savage-style acts. Then axioms are described that deliver probabilistic sophistication of preference on the set of unambiguous acts. In particular, both the domain and the values of the decision-maker's probability measure are derived from preference. It is argued that the noted result also provides a decision-theoretic foundation for the Knightian distinction between risk and ambiguity.

Suggested Citation

  • Epstein, Larry G & Zhang, Jiankang, 2001. "Subjective Probabilities on Subjectively Unambiguous Events," Econometrica, Econometric Society, vol. 69(2), pages 265-306, March.
  • Handle: RePEc:ecm:emetrp:v:69:y:2001:i:2:p:265-306
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    References listed on IDEAS

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    1. Marjorie B. McElroy, 1990. "The Empirical Content of Nash-Bargained Household Behavior," Journal of Human Resources, University of Wisconsin Press, vol. 25(4), pages 559-583.
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    7. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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