Subjective Probabilities on Subjectively Unambiguous Events

Larry Epstein () and Jiankang Zhang ()
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Jiankang Zhang: Department of Economics, Carleton University, http://http-server.carleton.ca/~jzhang/

No 99-18, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: The paper suggests a behavioural definition of (subjective) ambiguity in an abstract setting where objects of choice are Savage-style acts. Then axioms are described that deliver probabilistic sophistication of preference on the set of unambiguous acts. In particular, both the domain and the values of the decision-maker's probability measure are dervied from perference, delivering thereby a 'fully subjective' theory of probability. It is argued that the noted result also provides a decision-theoretic foundation for the Knightian distinction between risk and ambiguity and that it provides a unifed framework for analysing attitudes towards risk and towards ambiguity.

Keywords: subjective probability; ambiguity; expected utility; choquet (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 1999-11
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Published: Carelton Economic Paper

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Journal Article: Subjective Probabilities on Subjectively Unambiguous Events (2001)
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