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Ambiguity from the Differential Viewpoint

Ghirardato, Paolo and Maccheroni, Fabio and Marinacci, Massimo (2002) Ambiguity from the Differential Viewpoint. Social Science Working Paper, 1130. California Institute of Technology , Pasadena, CA. (Unpublished)

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The objective of this paper is to show how ambiguity, and a decision maker (DM)’s response to it, can be modeled formally in the context of a very general decision model. In the first part of the paper we introduce an “unambiguous preference” relation derived from the DM’s preferences, and show that it can be represented by a set of probability measures. We provide such set with a simple differential interpretation and argue that it represents the DM’s perception of the “ambiguity” present in the decision problem. Given the notion of ambiguity, we show that preferences can be represented so as to provide an intuitive representation of ambiguity attitudes. In the second part of the paper we provide some extensions and “applications” of these ideas. We present an axiomatic characterization of the α-MEU decision rule. We also consider a simple dynamic choice setting and show the characterization of the updating rule that revises every prior in the aforementioned set by Bayes’s rule; i.e., the generalized Bayesian updating rule.

Item Type:Report or Paper (Working Paper)
Additional Information:We are grateful to seminar audiences at the Université Paris I, Institute for Advanced Studies (Princeton, NJ), Università di Torino, Columbia University, as well as to Kim Border, Erio Castagnoli, Luigi Montrucchio, Klaus Nehring and Marciano Siniscalchi for helpful comments and discussion. Maccheroni and Marinacci are grateful to the MIUR for financial support.
Group:Social Science Working Papers
Funding AgencyGrant Number
Ministero dell'Istruzione, dell'Università e della Ricerca (MIUR)UNSPECIFIED
Subject Keywords:Ambiguity, Clarke Differentials, α-Maxmin Expected Utility, Generalized Bayesian Updating
Series Name:Social Science Working Paper
Issue or Number:1130
Classification Code:JEL: D80, D81
Record Number:CaltechAUTHORS:20170802-160400905
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79791
Deposited By: Jacquelyn Bussone
Deposited On:07 Aug 2017 18:16
Last Modified:03 Oct 2019 18:24

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