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Ellsberg Paradox Intuition and Choquet Expected Utility

In: Mathematical Models for Handling Partial Knowledge in Artificial Intelligence

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  • Alain Chateauneuf

    (Université Paris I, Cermsem)

Abstract

The aim of this paper is to introduce through two interpretations of Ellsberg paradox, Choquet expected utility (C.E.U.) models, a popular class of models introduced separately by Quiggin (1982), Yaari (1987) and Schmeidler (1982, 1989). Such models based on Choquet integral (Choquet (1954)) offer flexible but simple formulas, explain paradoxes of Allais (1953) under risk and of Ellsberg (1961) under uncertainty; moreover they allow to separate perception of uncertainty or risk from the valuation of outcomes. Here we emphasize the intuitive and appealing meaning of “comonotonicity”, and show the ability of C.E.U. models in modeling attitudes towards uncertainty and risk. A simple characterization of C.E.U. model, as in Chateauneuf (1994 a), is proposed, under the restrictive assumption of constant marginal utility for wealth. The general model, removing this restriction, is evocated in conclusion. Some economic applications are also quoted.

Suggested Citation

  • Alain Chateauneuf, 1995. "Ellsberg Paradox Intuition and Choquet Expected Utility," Springer Books, in: Giulianella Coletti & Didier Dubois & Romano Scozzafava (ed.), Mathematical Models for Handling Partial Knowledge in Artificial Intelligence, pages 1-20, Springer.
    • Handle: RePEc:spr:sprchp:978-1-4899-1424-8_1
    DOI: 10.1007/978-1-4899-1424-8_1
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