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A Characterization of Risk-Neutral and Ambiguity-Averse Behavior

Author

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  • Georgios Gerasimou

    (University of St Andrews)

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

  • Georgios Gerasimou, 2015. "A Characterization of Risk-Neutral and Ambiguity-Averse Behavior," Discussion Paper Series, School of Economics and Finance 201511, School of Economics and Finance, University of St Andrews, revised 10 Dec 2015.
  • Handle: RePEc:san:wpecon:1511
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    File URL: http://www.st-andrews.ac.uk/~wwwecon/repecfiles/4/1511.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, 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. 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.
    6. Alon, Shiri & Schmeidler, David, 2014. "Purely subjective Maxmin Expected Utility," Journal of Economic Theory, Elsevier, vol. 152(C), pages 382-412.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Maxmin expected value ambiguity aversion risk neutrality multiple priors de Finetti;

    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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