A simple mean–dispersion model of ambiguity attitudes

Mark A. Schneider and Manuel A. Nunez
Authors registered in the RePEc Author Service: Mark Schneider and Mark Schneider

Journal of Mathematical Economics, 2015, vol. 58, issue C, 25-31

Abstract: Several characterizations of ambiguity aversion decompose preferences into the expected utility of an act and an adjustment factor, an ambiguity index, or a dispersion function. In each of these cases, the adjustment factor has very little structure imposed on it, and thus these models provide little guidance as to which function to use from the infinite class of possible alternatives. In this paper, we provide a simple axiomatic characterization of mean–dispersion preferences which uniquely determines a subjective probability distribution over a set of possible priors and which uniquely identifies the dispersion function. We provide an algorithm for determining this subjective probability distribution and the coefficient in the dispersion function from experimental data. We also demonstrate that the model accommodates ambiguity aversion in the Ellsberg paradox.

Keywords: Ambiguity aversion; Translation invariance; Dispersion; Uncertainty; Probabilistic sophistication (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:58:y:2015:i:c:p:25-31

DOI: 10.1016/j.jmateco.2015.03.002

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