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A Characterization of Risk-Neutral and Ambiguity-Averse Behavior

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  • Gerasimou, Georgios

Abstract

This paper studies a decision maker who chooses monetary bets/investment portfolios under pure uncertainty. Necessary and sufficient conditions on his preferences over these objects are provided for his choice behavior to be guided by the *maxmin expected value* rule, and therefore to exhibit both ``risk neutrality'' and ambiguity aversion. This result is obtained as an extension of a simple re-characterization of de Finetti's theorem on maximization of subjective expected value.

Suggested Citation

  • Gerasimou, Georgios, 2015. "A Characterization of Risk-Neutral and Ambiguity-Averse Behavior," MPRA Paper 68159, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:68159
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    File URL: https://mpra.ub.uni-muenchen.de/68326/8/MPRA_paper_68326.pdf
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    References listed on IDEAS

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    1. repec:hal:pseose:hal-00685413 is not listed on IDEAS
    2. Aloisio Araujo & Alain Chateauneuf & José Faro, 2012. "Pricing rules and Arrow–Debreu ambiguous valuation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(1), pages 1-35, January.
    3. Casadesus-Masanell, Ramon & Klibanoff, Peter & Ozdenoren, Emre, 2000. "Maxmin Expected Utility over Savage Acts with a Set of Priors," Journal of Economic Theory, Elsevier, vol. 92(1), pages 35-65, May.
    4. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    5. Alon, Shiri & Schmeidler, David, 2014. "Purely subjective Maxmin Expected Utility," Journal of Economic Theory, Elsevier, vol. 152(C), pages 382-412.
    6. Gilboa,Itzhak, 2009. "Theory of Decision under Uncertainty," Cambridge Books, Cambridge University Press, number 9780521517324, January.
    7. Ramon Casadesus-Masanell & Peter Klibanoff & Emre Ozdenoren, 1998. "Maximum Expected Utility over Savage Acts with a Set of Priors," Discussion Papers 1218, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    8. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    9. Charalambos D. Aliprantis & Kim C. Border, 2006. "Infinite Dimensional Analysis," Springer Books, Springer, edition 0, number 978-3-540-29587-7, March.
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    Keywords

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    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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