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Skewed noise

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Dillenberger , David and Segal, U. (Uzi) (2017) Skewed noise. Journal of Economic Theory, 169 (2). pp. 344-364. doi:10.1016/j.jet.2017.02.005 ISSN 0022-0531.

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Official URL: https://doi.org/10.1016/j.jet.2017.02.005

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Abstract

We study the attitude of decision makers to skewed noise. For a binary lottery that yields the better outcome with probability p, we identify noise around p with a compound lottery that induces a distribution over the exact value of the probability and has an average value p. We propose and characterize a new notion of skewed distributions, and use a recursive non-expected utility to provide conditions under which rejection of symmetric noise implies rejection of negatively skewed noise, yet does not preclude acceptance of some positively skewed noise, in agreement with recent experimental evidence. In the context of decision making under uncertainty, our model permits the co-existence of aversion to symmetric ambiguity (as in Ellsberg's paradox) and ambiguity seeking for low likelihood "good" events.

Item Type: Journal Article
Subjects: Q Science > QA Mathematics
Divisions: Faculty of Social Sciences > Warwick Business School > Behavioural Science
Library of Congress Subject Headings (LCSH): Decision making -- Mathematical models, Uncertainty -- Mathematical models
Journal or Publication Title: Journal of Economic Theory
Publisher: Elsevier
ISSN: 0022-0531
Official Date: May 2017
Dates:
DateEvent
May 2017Published
21 February 2017Available
10 February 2017Accepted
Volume: 169
Number: 2
Page Range: pp. 344-364
DOI: 10.1016/j.jet.2017.02.005
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
Copyright Holders: Elsvier Inc
Date of first compliant deposit: 6 September 2017
Date of first compliant Open Access: 21 September 2018

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