Precautionary principle as a rule of choice with optimism on windfall gains and pessimism on catastrophic losses
The paper investigates a decision-making process involving both risk and ambiguity. Differently from existing papers [Basili, M., Chateauneuf, A., Fontini, F., 2005. Choices under ambiguity with familiar and unfamiliar outcomes, Theory and Decision 58, 195-207; Chichilnisky, G., 2000. Axiomatic approach to choice under uncertainty with catastrophic risks. Resources and Energy Economics 22, 221-231; Chichilnisky, G., 2002. In: El-Shaarawi, A.,H., Piegorsch, W.W. (Eds.), Catastropic Risks. Encyclopedia of Environmetrics, vol. 1. John Wiley & Sons, Ltd, Chichester, UK, pp. 274-279], we assume that, in a Choquet Expected Utility framework, the decision-maker is pessimistic with respect to unfamiliar (catastrophic) losses, optimistic with respect to unfamiliar (windfall) gains and ambiguity-neutral with respect to the familiar world. A representation of the decision-maker's choice is obtained that mimics the Restricted Bayes-Hurwicz Criterion. In this way a characterization of the Precautionary Principle is introduced for decision-making processes under ambiguity with catastrophic losses and/or windfall gains.
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.
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.:
- Dow, James & Werlang, Sérgio Ribeiro da Costa, 1992.
"Nash equilibrium under knightian uncertainty: breaking-down backward induction,"
Economics Working Papers (Ensaios Economicos da EPGE)
186, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Dow James & Werlang Sergio Ribeiro Da Costa, 1994. "Nash Equilibrium under Knightian Uncertainty: Breaking Down Backward Induction," Journal of Economic Theory, Elsevier, vol. 64(2), pages 305-324, December.
- Itzhak Gilboa & David Schmeidler, 1989.
"Maxmin Expected Utility with Non-Unique Prior,"
- David Schmeidler, 1989.
"Subjective Probability and Expected Utility without Additivity,"
Levine's Working Paper Archive
7662, David K. Levine.
- Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May.
- Moshe Levy & Haim Levy, 2002. "Prospect Theory: Much Ado About Nothing?," Management Science, INFORMS, vol. 48(10), pages 1334-1349, October.
- Ulrich Schmidt & Chris Starmer & Robert Sugden, 2005.
"Explaining preference reversal with third-generation prospect theory,"
2005-19, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Ulrich Schmidt & Chris Starmer & Robert Sugden, 2005. "Explaining preference reversal with third-generation prospect theory," Discussion Papers 2005-19, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
- Koszegi, Botond & Rabin, Matthew, 2004.
"A Model of Reference-Dependent Preferences,"
Department of Economics, Working Paper Series
qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Chichilnisky, Graciela, 2000. "An axiomatic approach to choice under uncertainty with catastrophic risks," Resource and Energy Economics, Elsevier, vol. 22(3), pages 221-231, July.
- Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
- Marcello Basili & Alain Chateauneuf & Fulvio Fontini, 2005.
"Choices under ambiguity with familiar and unfamilar outcomes,"
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers)
- Marcello Basili & Alain Chateauneuf & Fulvio Fontini, 2005. "Choices Under Ambiguity With Familiar And Unfamiliar Outcomes," Theory and Decision, Springer, vol. 58(2), pages 195-207, 03.
- Marcello Basili & Alain Chateauneuf & Fulvio Fontini, 2004. "Choices under ambiguity with familiar and unfamiliar outcomes," Cahiers de la Maison des Sciences Economiques b04115, Université Panthéon-Sorbonne (Paris 1).
- Nathalie Etchart-Vincent, 2004. "Is Probability Weighting Sensitive to the Magnitude of Consequences? An Experimental Investigation on Losses," Journal of Risk and Uncertainty, Springer, vol. 28(3), pages 217-235, 05.
- Gollier, Christian & Jullien, Bruno & Treich, Nicolas, 2000. "Scientific progress and irreversibility: an economic interpretation of the 'Precautionary Principle'," Journal of Public Economics, Elsevier, vol. 75(2), pages 229-253, February.
- Claude HENRY & Marc HENRY, 2002.
"Formalization and Applications of the Precuationary Principle,"
Discussion Papers (IRES - Institut de Recherches Economiques et Sociales)
2002009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Claude Henry & Marc Henry, 2002. "Formalization and applications of the Precautionary Principle," Working Papers hal-00243001, HAL.
When requesting a correction, please mention this item's handle: RePEc:eee:ecolec:v:67:y:2008:i:3:p:485-491. 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: (Zhang, Lei)
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.