Perceived Ambiguity and Relevant Measures

Sujoy Mukerji, Peter Klibanoff and Kyoungwon Seo

No 711, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We axiomatize preferences that can be represented by a monotonic aggregation of subjective expected utilities generated by a utility function and some set of i.i.d. probability measures over a product state space, S1. For such preferences, we define relevant measures, show that they are treated as if they were the only marginals possibly governing the state space and connect them with the measures appearing in the aforementioned representation. These results allow us to interpret relevant measures as reflecting part of perceived ambiguity, meaning subjective uncertainty about probabilities over states. Under mild conditions, we show that increases or decreases in ambiguity aversion cannot affect the relevant measures. This property, necessary for the conclusion that these measures reflect only perceived ambiguity, distinguishes the set of relevant measures from the leading alternative in the literature. We apply our findings to a number of well-known models of ambiguity-sensitive preferences. For each model, we identify the set of relevant measures and the implications of comparative ambiguity aversion.

Keywords: Symmetry; beliefs; ambiguity; ambiguity aversion; sets of probabilities (search for similar items in EconPapers)
JEL-codes: D01 D80 D81 D83 (search for similar items in EconPapers)
Date: 2014-06-10
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

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Journal Article: Perceived Ambiguity and Relevant Measures (2014)
Journal Article: Perceived Ambiguity and Relevant Measures (2014)
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