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Uncertainty Aversion

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  • Larry Epstein

Abstract

A definition of uncertainty or ambiguity aversion is proposed. It is argued that the definition is well-suited to modelling within the Savage (as opposed to Anscombe and Aumann) domain of acts. The defined property of uncertainty aversion has intuitive empirical content, behaves well in specific models of preference (multiple-priors and Choquet expected utility) and is tractable. Tractability is established through use of a nonstandard notion of differentiability for utility functions, called eventwise differentiability.

Suggested Citation

  • Larry Epstein, 1997. "Uncertainty Aversion," Working Papers epstein-97-01, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:epstein-97-01
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    References listed on IDEAS

    as
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    Cited by:

    1. Yoram Halevy & Vincent Feltkamp, 2005. "A Bayesian Approach to Uncertainty Aversion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(2), pages 449-466.
    2. Massimo Marinacci, 2002. "Probabilistic Sophistication and Multiple Priors," Econometrica, Econometric Society, vol. 70(2), pages 755-764, March.
    3. Jean-Marc Tallon & Alain Chateauneuf, 2002. "Diversification, convex preferences and non-empty core in the Choquet expected utility model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 509-523.

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    More about this item

    JEL classification:

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

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