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Exactly What Happens After The Anscombe-aumann Race? Representing Preferences In Vague Environments

Author

Listed:
  • Marie-Louise Viero

    () (Queen's University)

Abstract

This paper derives a representation of preferences for a choice theory with vague environments; vague in the sense that the agent does not know the precise probability distributions over outcomes conditional on states. Instead, he knows only a possible set of these probabilities for each state. Thus, the paper relaxes an assumption about the environment, which is done while maintaining the independence axiom. The behavior implied by this model is different from both the behavior implied by standard subjective expected utility models and the behavior implied by ambiguity aversion models. To illustrate these differences and the importance of allowing for vagueness, the consequences of the developed theory for a simple contracting problem are considered. The paper also provides a defense of the independence axiom against the usual Ellsberg critique.

Suggested Citation

  • Marie-Louise Viero, 2006. "Exactly What Happens After The Anscombe-aumann Race? Representing Preferences In Vague Environments," Working Paper 1094, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:1094
    as

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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1094.pdf
    File Function: First version 2006
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    References listed on IDEAS

    as
    1. 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.
    2. Marie-Louise Vierø, 2012. "Contracting in Vague Environments," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 104-130, May.
    3. Kreps, David M, 1979. "A Representation Theorem for "Preference for Flexibility"," Econometrica, Econometric Society, vol. 47(3), pages 565-577, May.
    4. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, vol. 113(1), pages 1-31, November.
    5. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
    6. Gajdos, T. & Hayashi, T. & Tallon, J.-M. & Vergnaud, J.-C., 2008. "Attitude toward imprecise information," Journal of Economic Theory, Elsevier, vol. 140(1), pages 27-65, May.
    7. Larry Epstein & Massimo Marinacci, 2005. "Coarse Contingencies," RCER Working Papers 515, University of Rochester - Center for Economic Research (RCER).
    8. Truman F. Bewley, 1986. "Knightian Decision Theory: Part 1," Cowles Foundation Discussion Papers 807, Cowles Foundation for Research in Economics, Yale University.
    9. Thibault Gajdos & Takashi Hayashi & Jean-Marc Tallon & Jean-Christophe Vergnaud, 2008. "Attitude toward imprecise information," Post-Print halshs-00451982, HAL.
    10. Thibault Gajdos & Takashi Hayashi & Jean-Marc Tallon & Jean-Christophe Vergnaud, 2006. "Attitude toward imprecise information," Post-Print halshs-00130179, HAL.
    11. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    12. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October.
    13. Dekel, Eddie & Lipman, Barton L & Rustichini, Aldo, 2001. "Representing Preferences with a Unique Subjective State Space," Econometrica, Econometric Society, vol. 69(4), pages 891-934, July.
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    Cited by:

    1. Marie-Louise Vierø, 2012. "Contracting in Vague Environments," American Economic Journal: Microeconomics, American Economic Association, vol. 4(2), pages 104-130, May.

    More about this item

    Keywords

    Positivism; Decision Theory; Optimism; Utility; Vagueness;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D00 - Microeconomics - - General - - - General

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