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Recursive Ambiguity and Machina's Examples

Author

Listed:
  • David Dillenberger

    () (University of Pennsylvania)

  • Uzi Segal

    () (Boston College)

Abstract

Machina (2009, 2012) lists a number of situations where standard models of ambiguity aversion are unable to capture plausible features of ambiguity attitudes. Most of these problems arise in choice over prospects involving three or more outcomes. We show that the recursive non-expected utility model of Segal (1987) is rich enough to accommodate all these situations.

Suggested Citation

  • David Dillenberger & Uzi Segal, 2012. "Recursive Ambiguity and Machina's Examples," Boston College Working Papers in Economics 800, Boston College Department of Economics.
  • Handle: RePEc:boc:bocoec:800
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    References listed on IDEAS

    as
    1. Dillenberger, David, 2008. "Preferences for One-Shot Resolution of Uncertainty and Allais-Type Behavior," MPRA Paper 8342, University Library of Munich, Germany.
    2. 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.
    3. Aurelien Baillon & Olivier L'Haridon & Laetitia Placido, 2011. "Ambiguity Models and the Machina Paradoxes," American Economic Review, American Economic Association, vol. 101(4), pages 1547-1560, June.
    4. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    5. Yoram Halevy, 2007. "Ellsberg Revisited: An Experimental Study," Econometrica, Econometric Society, vol. 75(2), pages 503-536, March.
    6. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Oxford University Press, vol. 75(4), pages 643-669.
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    Cited by:

    1. repec:kap:theord:v:84:y:2018:i:1:d:10.1007_s11238-017-9636-6 is not listed on IDEAS
    2. repec:kap:jrisku:v:54:y:2017:i:3:d:10.1007_s11166-017-9260-4 is not listed on IDEAS
    3. Lehrer, Ehud & Teper, Roee, 2015. "Subjective independence and concave expected utility," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 33-53.
    4. Wong, Kit Pong, 2016. "Ambiguity and the multinational firm," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 404-414.

    More about this item

    Keywords

    Ambiguity; Ellsberg paradox; Choquet expected utility; recursive non-expected utility;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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