Mean-dispersion preferences with a specific dispersion function

Manuel Nunez and Mark Schneider

Journal of Mathematical Economics, 2019, vol. 84, issue C, 195-206

Abstract: A popular approach to modeling ambiguity aversion is to decompose preferences into the subjective expected utility of an act and an ambiguity index, or an adjustment factor, or a dispersion function. However, in these approaches the dispersion function (or ambiguity index, or adjustment factor) has very little structure imposed on it, leaving the selection of a specific dispersion function in applications to be rather arbitrary. In this paper, working in the Anscombe–Aumann (1963) framework, we provide a simpler axiomatic characterization of mean-dispersion preferences which uniquely identifies the dispersion function from the infinite class of possible alternatives. We also obtain existence of unique subjective probabilities.

Keywords: Ambiguity aversion; Translation invariance; Dispersion; Uncertainty; Probabilistic sophistication (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:84:y:2019:i:c:p:195-206

DOI: 10.1016/j.jmateco.2019.08.004

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