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Subjective Probabilities on Subjectively Unambiguous Events

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Abstract

The paper suggests a behavioural definition of (subjective) ambiguity in an abstract setting where objects of choice are Savage-style acts. Then axioms are described that deliver probabilistic sophistication of preference on the set of unambiguous acts. In particular, both the domain and the values of the decision-maker's probability measure are dervied from perference, delivering thereby a 'fully subjective' theory of probability. It is argued that the noted result also provides a decision-theoretic foundation for the Knightian distinction between risk and ambiguity and that it provides a unifed framework for analysing attitudes towards risk and towards ambiguity.

Suggested Citation

  • Larry G. Epstein & Jiankang Zhang, 1999. "Subjective Probabilities on Subjectively Unambiguous Events," Carleton Economic Papers 99-18, Carleton University, Department of Economics.
    • Handle: RePEc:car:carecp:99-18
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    File URL: http://www.carleton.ca/economics/research/working-papers/carleton-economic-papers-cep/1991-2000/
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    Keywords

    subjective probability; ambiguity; expected utility; choquet;
    All these keywords.

    JEL classification:

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

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