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Recursive ambiguity and machina's examples
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Dillenberger, David and Segal, U. (Uzi) (2015) Recursive ambiguity and machina's examples. International Economic Review, 56 (1). pp. 55-61. doi:10.1111/iere.12094 ISSN 0020-6598.
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Official URL: http://dx.doi.org/10.1111/iere.12094
Abstract
Ambiguity aversion is one of the most investigated phenomenon in decision theory. Ambiguity refers to situations where a decision maker does not know the exact probabilities of some events. The claim that decision makers systematically prefer betting on events with known instead of with unknown probabilities, a phenomenon known as ambiguity aversion, was first suggested in a series of examples by Ellsberg (1961) and was soon proved to hold true in many experiments. The importance of Ellsberg’s findings stems from the fact that they cannot be reconciled with individuals holding any subjective probabilities over events. Mainly motivated by Ellsberg’s examples, several formal models have been proposed to accommodate ambiguity aversion. One of the most important models in the literature, known as Choquet expected utility (Schmeidler, 1989), assumes that decision makers hold nonadditive beliefs (called capacities), which overweight events associated with bad outcomes.
Item Type: | Journal Article | ||||||||
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Divisions: | Faculty of Social Sciences > Warwick Business School > Behavioural Science Faculty of Social Sciences > Warwick Business School |
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Journal or Publication Title: | International Economic Review | ||||||||
Publisher: | Wiley-Blackwell Publishing, Inc. | ||||||||
ISSN: | 0020-6598 | ||||||||
Official Date: | February 2015 | ||||||||
Dates: |
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Volume: | 56 | ||||||||
Number: | 1 | ||||||||
Page Range: | pp. 55-61 | ||||||||
DOI: | 10.1111/iere.12094 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access |
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