Dual-self Representations of Ambiguity Preferences

Madhav Chandrasekher, Mira Frick (), Ryota Iijima () and Yves Le Yaouanq ()
Additional contact information
Mira Frick: Cowles Foundation, Yale University
Ryota Iijima: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/ryota-iijima

No 2180R3, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We propose a class of multiple-prior representations of preferences under ambiguity, where the belief the decision-maker (DM) uses to evaluate an uncertain prospect is the outcome of a game played by two conflicting forces, Pessimism and Optimism. The model does not restrict the sign of the DM's ambiguity attitude, and we show that it provides a uni?ed framework through which to characterize di?erent degrees of ambiguity aversion, and to represent the co-existence of negative and positive ambiguity attitudes within individuals as documented in experiments. We prove that our baseline representation, dual-self expected utility (DSEU), yields a novel representation of the class of invariant biseparable preferences (Ghirardato, Maccheroni, and Marinacci, 2004), which drops uncertainty aversion from maxmin expected utility (Gilboa and Schmeidler, 1989), while extensions of DSEU allow for more general departures from independence. We also provide foundations for a generalization of prior-by-prior belief updating to our model.

Keywords: Ambiguity; Multiple priors; Dual-self models (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2019-06, Revised 2021-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Econometrica, (May 2022), 90(3): 1029-1061

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Related works:
Journal Article: Dual‐Self Representations of Ambiguity Preferences (2022)
Working Paper: Dual-self Representations of Ambiguity Preferences (2020)
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