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