Who is ambiguity neutral?

Pavlo Blavatskyy ()
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Pavlo Blavatskyy: Montpellier Business School

The Geneva Risk and Insurance Review, 2024, vol. 49, issue 2, No 2, 193 pages

Abstract: Abstract A subjective expected utility maximizer is usually considered to be neutral to ambiguity (Knightian uncertainty). Arguably, a decision-maker who behaves as if he or she forms probabilistic beliefs over uncertain events (but does not necessarily maximize expected utility) is also ambiguity neutral. This note proposes a simple definition of (absolute) ambiguity neutrality in choice under Knightian uncertainty: if a decision-maker bets more money on event A rather than on event B then he or she should also consistently bet less money on event B (rather than on event A). This definition is consistent with the classic Ellsberg two- and three-color paradoxes.

Keywords: Uncertainty; Ambiguity; Ambiguity neutrality; Ellsberg paradox; Subjective expected utility (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1057/s10713-023-00086-1

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