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Choices Under Ambiguity With Familiar And Unfamiliar Outcomes

  • Marcello Basili

    ()

  • Alain Chateauneuf
  • Fulvio Fontini

This paper considers a decision-making process under ambiguity in which the decision-maker is supposed to split outcomes between familiar and unfamiliar ones. She is assumed to behave differently with respect to unfamiliar gains, unfamiliar losses and customary (familiar) outcomes. In particular, she is supposed to be pessimistic on gains, optimistic on losses and ambiguity neutral on the familiar outcomes. A generalization of the usual Choquet Integral is formalized when the decision maker holds capacities and probabilities. A characterization of the decision-maker’s behavior is provided for a specific subset of capacities, in which it is shown that the decision-maker underestimates the unfamiliar outcomes while is linear in probabilities on customary ones. Copyright Springer 2005

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File URL: http://hdl.handle.net/10.1007/s11238-005-5682-6
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Article provided by Springer in its journal Theory and Decision.

Volume (Year): 58 (2005)
Issue (Month): 2 (03)
Pages: 195-207

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Handle: RePEc:kap:theord:v:58:y:2005:i:2:p:195-207
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100341

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  1. 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).
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