Economics at your fingertips  

Uncertainty and compound lotteries: calibration

Yoram Halevy and Emre Ozdenoren

Economic Theory, 2022, vol. 74, issue 2, No 3, 373-395

Abstract: Abstract This paper introduces a theoretical model of decision making in which preferences are defined on both Savage subjective acts and compound objective lotteries. Preferences are two-stage probabilistically sophisticated when the ranking of acts corresponds to the ranking of the respective compound lotteries induced by the acts through the decision maker’s subjective belief. This family of preferences includes various theoretical models proposed in the literature to accommodate non-neutral attitude towards ambiguity. The principle of calibration relates preferences over acts and compound objective lotteries, and provides a foundation for the tight empirical association between probabilistic sophistication and reduction of compound lotteries for all two-stage probabilistically sophisticated preferences.

Keywords: Ellsberg paradox; Ambiguity; Non-expected utility; Knightian uncertainty; Two-stage lotteries (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Uncertainty and Compound Lotteries: Calibration (2021) Downloads
Working Paper: Uncertainty and Compound Lotteries: Calibration (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

DOI: 10.1007/s00199-022-01453-1

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2024-03-31
Handle: RePEc:spr:joecth:v:74:y:2022:i:2:d:10.1007_s00199-022-01453-1