Evaluating ambiguous random variables from Choquet to maxmin expected utility

Faruk Gul and Wolfgang Pesendorfer

Journal of Economic Theory, 2021, vol. 192, issue C

Abstract: We introduce a new theory of belief revision under ambiguity. It is recursive (random variables are evaluated by backward induction) and consequentialist (the conditional expectation of any random variable depends only on the values the random variable attains on the conditioning event). Agents experience no change in preferences but are sensitive to the timing of resolution of uncertainty. We provide three main theorems: the first characterizes our rule and relates it to standard Bayesian updating; the others show that the dynamic behavior of an agent who adopts our rule is maxmin expected utility with an arbitrary set of priors.

Keywords: Ambiguity; Updating; Resolution of uncertainty (search for similar items in EconPapers)
JEL-codes: D10 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:192:y:2021:i:c:s0022053120301228

DOI: 10.1016/j.jet.2020.105129

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