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Uncertainty Aversion and Dynamic Consistency

Author

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  • Eichberger, J.
  • Kelsey, D.

Abstract

This paper applies a proposal of M. Machina (1989) for updating nonexpected utility preferences to D. Schmeidler's (1989) nonadditive probability model. The authors discover that the updated preferences may not themselves satisfy Schmeidler's axioms. Despite this, the updates of uncertainty averse preferences are themselves uncertainty averse. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Suggested Citation

  • Eichberger, J. & Kelsey, D., 1993. "Uncertainty Aversion and Dynamic Consistency," Discussion Papers 93-08, Department of Economics, University of Birmingham.
  • Handle: RePEc:bir:birmec:93-08
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    Cited by:

    1. Jürgen Eichberger & Simon Grant & David Kelsey, 2012. "When is ambiguity–attitude constant?," Journal of Risk and Uncertainty, Springer, vol. 45(3), pages 239-263, December.
    2. Eichberger, Jurgen & Grant, Simon & Kelsey, David, 2005. "CEU preferences and dynamic consistency," Mathematical Social Sciences, Elsevier, vol. 49(2), pages 143-151, March.
    3. André Lapied & Pascal Toquebeuf, 2011. "Dynamically consistent CEU preferences," Working Papers halshs-00856193, HAL.
    4. Eichberger, Jürgen & Oechssler, Jörg & Schnedler, Wendelin, 2012. "How do people cope with an ambiguous situation when it becomes even more ambiguous?," Working Papers 0528, University of Heidelberg, Department of Economics.
    5. Lapied, André & Toquebeuf, Pascal, 2012. "Dynamically consistent CEU preferences on f-convex events," Mathematical Social Sciences, Elsevier, vol. 63(3), pages 252-256.
    6. J L Ford, David Kelsey and W Pang, 2005. "Ambiguity in Financial Markets: Herding and Contrarian Behaviour," Discussion Papers 05-11, Department of Economics, University of Birmingham.
    7. Dominiak, Adam & Duersch, Peter & Lefort, Jean-Philippe, 2012. "A dynamic Ellsberg urn experiment," Games and Economic Behavior, Elsevier, vol. 75(2), pages 625-638.
    8. repec:dau:papers:123456789/7333 is not listed on IDEAS
    9. Heyen, Daniel, 2017. "Ambiguity aversion under maximum-likelihood updating," LSE Research Online Documents on Economics 80342, London School of Economics and Political Science, LSE Library.
    10. Jürgen Eichberger & David Kelsey, 1999. "E-Capacities and the Ellsberg Paradox," Theory and Decision, Springer, vol. 46(2), pages 107-138, April.
    11. Rakesh Sarin & Peter Wakker, 1997. "A Single-Stage Approach to Anscombe and Aumann's Expected Utility," Review of Economic Studies, Oxford University Press, vol. 64(3), pages 399-409.
    12. Riedel, Frank, 2010. "Optimal Stopping under Ambiguity," Center for Mathematical Economics Working Papers 390, Center for Mathematical Economics, Bielefeld University.
    13. Werlang, Sérgio Ribeiro da Costa, 2000. "A notion of subgame perfect Nash equilibrium under knightian uncertainty," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 376, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    14. Gumen, Anna & Savochkin, Andrei, 2013. "Dynamically stable preferences," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1487-1508.
    15. repec:dau:papers:123456789/7357 is not listed on IDEAS
    16. Eichberger, Jürgen & Güth, Werner & Müller, Wieland, 1999. "Dynamic decision structure and risk taking," SFB 373 Discussion Papers 1999,95, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.

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    Keywords

    uncertainty;

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