Mean-Dispersion Preferences with a Specific Dispersion Function

Mark Schneider and Manuel Nunez ()
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Manuel Nunez: School of Business, University of Connecticut

Working Papers from Chapman University, Economic Science Institute

Abstract: A popular approach to modeling ambiguity aversion is to decompose preferences into the subjective expected utility of an act and an ambiguity index, or an adjustment factor, or a dispersion function. However, in these approaches the dispersion function (or ambiguity index, or adjustment factor) has very little structure imposed on it, leaving the selection of a specific dispersion function in applications to be rather arbitrary. In this note, working in the Anscombe- Aumann (1963) framework, we provide a simpler axiomatic characterization of mean-dispersion preferences which uniquely identifies the dispersion function from the infinite class of possible alternatives. Given the representation, we also obtain unique identification of subjective probabilities.

Keywords: ambiguity aversion; translation invariance; dispersion; uncertainty; probabilistic sophistication (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:16-10

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