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Choice deferral and ambiguity aversion

  • Kopylov, Igor

    ()

    (Department of Economics and Institute for Mathematical Behavioral Sciences, University of California, Irvine)

When confronted with uncertain prospects, people often exhibit both choice deferral and Ellsberg-type ambiguity aversion. This paper obtains a joint representation for these behavioral phenomena. The decision maker as portrayed by my model is willing to choose an uncertain prospect f over g rather than to defer this choice if and only if the expected utility of f is greater that or equal to the expected utility of g for every probability measure in a convex and closed set Delta. This set is interpreted as a collection of the decision maker's possible future beliefs. When choices cannot be deferred, the decision maker evaluates every uncertain prospect via an epsilon-mixture of the least favorable element in the set Delta and her current probabilistic belief p in Delta. All components of my model are derived from observable preferences in an essentially unique way.

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File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20090199/2519/131
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Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 4 (2009)
Issue (Month): 2 (June)
Pages:

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Handle: RePEc:the:publsh:498
Contact details of provider: Web page: http://econtheory.org

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