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Comment on Ellsberg's two-color experiment, portfolio inertia and ambiguity

Author

Listed:
  • Youichiro Higashi

    (Department of economics - University of Rochester [USA])

  • Sujoy Mukerji

    (University of Oxford [Oxford])

  • Norio Takeoka

    (Department of economics - University of Rochester [USA])

  • Jean-Marc Tallon

    () (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

Abstract

The final step in the proof of Proposition 1 (p.311) of Mukerji and Tallon (2003) may not hold in generalbecause $\varepsilon>0$ in the proof cannot be chosen independently of $w,z$. We point out by a counterexample that the axioms they impose are too weak for Proposition 1. We introduce a modified set of axioms and re-establish the proposition

Suggested Citation

  • Youichiro Higashi & Sujoy Mukerji & Norio Takeoka & Jean-Marc Tallon, 2008. "Comment on Ellsberg's two-color experiment, portfolio inertia and ambiguity," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00175266, HAL.
  • Handle: RePEc:hal:cesptp:halshs-00175266 DOI: 10.1111/j.1742-7363.2008.00087.x Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00175266
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    References listed on IDEAS

    as
    1. Mukerji, Sujoy & Tallon, Jean-Marc, 2003. "Ellsberg's two-color experiment, portfolio inertia and ambiguity," Journal of Mathematical Economics, Elsevier, pages 299-316.
    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. Dow, James & Werlang, Sergio Ribeiro da Costa, 1992. "Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio," Econometrica, Econometric Society, vol. 60(1), pages 197-204, January.
    4. Epstein, Larry G & Zhang, Jiankang, 2001. "Subjective Probabilities on Subjectively Unambiguous Events," Econometrica, Econometric Society, vol. 69(2), pages 265-306, March.
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    Keywords

    ambiguity; bid ask spread; Ellsberg paradox;

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