Ambiguity and Nonexpected Utility
Fabio Maccheroni and
Chapter 17 in Handbook of Game Theory with Economic Applications, 2015, vol. 4, pp 901-947 from Elsevier
This chapter reviews developments in the theory of decision making under risk and uncertainty, focusing on models that, over the last 40 years, dominated the theoretical discussions. It also surveys some implications of the departures from the â€œlinearity in the probabilitiesâ€ aspect of expected utility theory to game theory. The chapter consists of two main parts: The first part reviews models of decision making under risk that depart from the independence axiom, focusing on the rank-dependent utility models and cumulative prospect theory. The second part reviews theories of decision making under uncertainty that depart from the sure thing principle and model the phenomenon of ambiguity and ambiguity aversion.
Keywords: Nonexpected utility; Rank dependent utility; Ambiguity; Ambiguity aversion; Smooth ambiguity aversion; Auction theory; Decision making under uncertainty; D81; C7 (search for similar items in EconPapers)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:gamchp:v:4:y:2015:i:c:p:901-947
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