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Small worlds: Modeling attitudes toward sources of uncertainty

Listed author(s):
  • Chew, Soo Hong
  • Sagi, Jacob S.

We introduce the concept of a conditional small world event domain--an extension of Savage's [The Foundations of Statistics, Wiley, New York, 1954] notion of a 'small world'--as a self-contained collection of comparable events. Under weak behavioral conditions we demonstrate probabilistic sophistication in any small world event domain without relying on monotonicity or continuity. Probabilistic sophistication within, though not necessarily across, small worlds provides a foundation for modeling a decision maker that has source-dependent risk attitudes. This also helps formalize the idea of source preference and suggests an interpretation of ambiguity aversion, often associated with Ellsberg-type behavior, in terms of comparative risk aversion across small worlds.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022-0531(07)00111-1
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 139 (2008)
Issue (Month): 1 (March)
Pages: 1-24

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Handle: RePEc:eee:jetheo:v:139:y:2008:i:1:p:1-24
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  19. Haluk Ergin & Faruk Gul, 2004. "A subjective theory of compound lotteries," Econometric Society 2004 North American Summer Meetings 152, Econometric Society.
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  23. Chew Soo Hong & Jacob S. Sagi, 2006. "Event Exchangeability: Probabilistic Sophistication Without Continuity or Monotonicity," Econometrica, Econometric Society, vol. 74(3), pages 771-786, 05.
  24. Nakamura, Yutaka, 1990. "Subjective expected utility with non-additive probabilities on finite state spaces," Journal of Economic Theory, Elsevier, vol. 51(2), pages 346-366, August.
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