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Foundations of ambiguity models under symmetry: α-MEU and smooth ambiguity

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  • Klibanoff, Peter
  • Mukerji, Sujoy
  • Seo, Kyoungwon
  • Stanca, Lorenzo

Abstract

The α-MEU model and the smooth ambiguity model are two popular models in decision making under ambiguity. However, the axiomatic foundations of these two models are not completely understood. We provide axiomatic foundations of these models in a symmetric setting with a product state space S∞. This setting allows marginals over S to be linked behaviorally with (limiting frequency) events. Bets on such events are shown to reveal the i.i.d. measures that are relevant for the decision maker's preferences and appear in the representations. By characterizing both models within a common framework, it becomes possible to better compare and relate them.

Suggested Citation

  • Klibanoff, Peter & Mukerji, Sujoy & Seo, Kyoungwon & Stanca, Lorenzo, 2022. "Foundations of ambiguity models under symmetry: α-MEU and smooth ambiguity," Journal of Economic Theory, Elsevier, vol. 199(C).
    • Handle: RePEc:eee:jetheo:v:199:y:2022:i:c:s0022053121000193
    DOI: 10.1016/j.jet.2021.105202
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    More about this item

    Keywords

    Symmetry; Beliefs; Ambiguity; Multiple priors; Smooth ambiguity;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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