IDEAS home Printed from https://ideas.repec.org/a/kap/jeczfn/v118y2016i3d10.1007_s00712-016-0473-9.html
   My bibliography  Save this article

On ambiguity apportionment

Author

Listed:
  • Christophe Courbage

    () (University of Applied Sciences Western Switzerland (HES-SO))

  • Beatrice Rey

    () (Université de Lyon
    CNRS, GATE Lyon Saint-Etienne
    Université Lyon 2)

Abstract

Abstract This paper investigates the notion of changes in ambiguity over loss probabilities in the smooth ambiguity model developed by Klibanoff, Marinacci and Mukerji (Econometrica 73:1849–1892, 2005). Changes in ambiguity over loss probabilities are expressed through the specific concept of stochastic dominance of order n defined by Ekern (Econ Lett 6:329–333, 1980). We characterize conditions on the function capturing attitudes towards ambiguity under which an individual always considers one situation to be more ambiguous than another in a model of two states of nature. We propose an intuitive interpretation of the properties of this function in terms of preferences for harms disaggregation over probabilities, also labelled ambiguity apportionment.

Suggested Citation

  • Christophe Courbage & Beatrice Rey, 2016. "On ambiguity apportionment," Journal of Economics, Springer, vol. 118(3), pages 265-275, July.
  • Handle: RePEc:kap:jeczfn:v:118:y:2016:i:3:d:10.1007_s00712-016-0473-9
    DOI: 10.1007/s00712-016-0473-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00712-016-0473-9
    File Function: Abstract
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Fabrice Collard & Sujoy Mukerji & Kevin Sheppard & Jean‐Marc Tallon, 2018. "Ambiguity and the historical equity premium," Quantitative Economics, Econometric Society, vol. 9(2), pages 945-993, July.
    2. Eeckhoudt, Louis & Schlesinger, Harris & Tsetlin, Ilia, 2009. "Apportioning of risks via stochastic dominance," Journal of Economic Theory, Elsevier, vol. 144(3), pages 994-1003, May.
    3. Berger, Loïc & Bleichrodt, Han & Eeckhoudt, Louis, 2013. "Treatment decisions under ambiguity," Journal of Health Economics, Elsevier, vol. 32(3), pages 559-569.
    4. Arthur Snow, 2010. "Ambiguity and the value of information," Journal of Risk and Uncertainty, Springer, vol. 40(2), pages 133-145, April.
    5. Taboga, Marco, 2005. "Portfolio selection with two-stage preferences," Finance Research Letters, Elsevier, vol. 2(3), pages 152-164, September.
    6. Caballe, Jordi & Pomansky, Alexey, 1996. "Mixed Risk Aversion," Journal of Economic Theory, Elsevier, vol. 71(2), pages 485-513, November.
    7. Nengjiu Ju & Jianjun Miao, 2012. "Ambiguity, Learning, and Asset Returns," Econometrica, Econometric Society, vol. 80(2), pages 559-591, March.
    8. Philip J. Cook & Daniel A. Graham, 1977. "The Demand for Insurance and Protection: The Case of Irreplaceable Commodities," The Quarterly Journal of Economics, Oxford University Press, vol. 91(1), pages 143-156.
    9. 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.
    10. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
    11. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, vol. 113(1), pages 1-31, November.
    12. Chow, Clare Chua & Sarin, Rakesh K, 2001. "Comparative Ignorance and the Ellsberg Paradox," Journal of Risk and Uncertainty, Springer, vol. 22(2), pages 129-139, March.
    13. Ekern, Steinar, 1980. "Increasing Nth degree risk," Economics Letters, Elsevier, vol. 6(4), pages 329-333.
    14. Sandmo, Agnar, 1971. "On the Theory of the Competitive Firm under Price Uncertainty," American Economic Review, American Economic Association, vol. 61(1), pages 65-73, March.
    15. Patrick L. Brockett & Linda L. Golden, 1987. "A Class of Utility Functions Containing all the Common Utility Functions," Management Science, INFORMS, vol. 33(8), pages 955-964, August.
    16. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    17. Denuit, Michel & Rey, Béatrice, 2013. "Another look at risk apportionment," Journal of Mathematical Economics, Elsevier, vol. 49(4), pages 335-343.
    18. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    19. Arthur Snow, 2011. "Ambiguity aversion and the propensities for self-insurance and self-protection," Journal of Risk and Uncertainty, Springer, vol. 42(1), pages 27-43, February.
    20. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Oxford University Press, vol. 75(4), pages 643-669.
    21. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
    22. Christian Gollier, 2014. "Optimal insurance design of ambiguous risks," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(3), pages 555-576, November.
    23. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    24. David Alary & Christian Gollier & Nicolas Treich, 2013. "The Effect of Ambiguity Aversion on Insurance and Self‐protection," Economic Journal, Royal Economic Society, vol. 123(12), pages 1188-1202, December.
    25. Huang, Yi-Chieh & Tzeng, Larry Y. & Zhao, Lin, 2015. "Comparative ambiguity aversion and downside ambiguity aversion," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 257-269.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:ecmode:v:71:y:2018:i:c:p:272-278 is not listed on IDEAS
    2. repec:kap:jrisku:v:58:y:2019:i:1:d:10.1007_s11166-019-09296-3 is not listed on IDEAS
    3. Han Bleichrodt & Christophe Courbage & Béatrice Rey, 2018. "The Value of a Statistical Life Under Changes in Ambiguity," Working Papers 1832, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    4. Han Bleichrodt & Christophe Courbage & Béatrice Rey-Fournier, 2018. "The Value of a Statistical Life Under Changes in Ambiguity," Working Papers halshs-01943887, HAL.

    More about this item

    Keywords

    Smooth ambiguity aversion; More ambiguity; Ambiguity apportionment; Stochastic dominance;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jeczfn:v:118:y:2016:i:3:d:10.1007_s00712-016-0473-9. 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: (Sonal Shukla) or (Mallaigh Nolan). General contact details of provider: http://www.springer.com .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.