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No-betting Pareto under ambiguity

Itzhak Gilboa () and Larry Samuelson ()
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Larry Samuelson: Yale University

Theory and Decision, 2022, vol. 92, issue 3, No 10, 625-645

Abstract: Abstract It has been argued that Pareto-improving trade is not as compelling under uncertainty as it is under certainty. The former may involve agents with different beliefs, who might wish to execute trades that are no more than betting. In response, the concept of no-betting Pareto dominance was introduced, requiring that putative Pareto improvements must be rationalizable by some common probabilities, even though the participants’ beliefs may differ. In this paper, we argue that this definition might be too narrow for use when agents are not Bayesian. Agents who face ambiguity might wish to trade in ways that can be justified by common ambiguity, though not necessarily by common probabilities. We accordingly extend the notion of no-betting Pareto dominance to characterize trades than are “no-betting Pareto” ranked according to the maxmin expected utility model.

Keywords: Ambiguity; Pareto optimality; No-betting (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11238-021-09817-0

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