Subjective Probabilities on Subjectively Unambiguous Events

Larry Epstein and Jiankang Zhang ()

Econometrica, 2001, vol. 69, issue 2, 265-306

Abstract: This paper suggests a behavioral 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 derived from preference. It is argued that the noted result also provides a decision-theoretic foundation for the Knightian distinction between risk and ambiguity.

Date: 2001
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Working Paper: Subjective Probabilities on Subjectively Unambiguous Events (1999)
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