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Ambiguity Made Precise: A Comparative Foundation and Some Implications

Author

Listed:
  • Ghirardato, Paolo
  • Marinacci, M.

Abstract

The theory of subjective expected utility (SEU) has been recently extended to allow ambiguity to matter for choice. We propose a notion of absolute ambiguity aversion by building on a notion of comparative ambiguity aversion. We characterize it for a preference model which encompasses some of the most popular models in the literature. We next build on these ideas to provide a definition of unambiguous act and event, and show the characterization of the latter. As an illustration, we consider the classical Ellsberg 3-color urn problem and find that the notions developed in the paper provide intuitive answers.

Suggested Citation

  • Ghirardato, Paolo & Marinacci, M., 1997. "Ambiguity Made Precise: A Comparative Foundation and Some Implications," Working Papers 1026, California Institute of Technology, Division of the Humanities and Social Sciences.
    • Handle: RePEc:clt:sswopa:1026
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    File URL: http://www.hss.caltech.edu/SSPapers/wp1026.pdf
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