Choice deferral and ambiguity aversion

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,: Department of Economics and Institute for Mathematical Behavioral Sciences, University of California, Irvine
Authors registered in the RePEc Author Service: Igor Kopylov

Theoretical Economics, 2009, vol. 4, issue 2

Abstract: When confronted with uncertain prospects, people often exhibit both choice deferral and Ellsberg-type ambiguity aversion. This paper obtains a joint representation for these behavioral phenomena. The decision maker as portrayed by my model is willing to choose an uncertain prospect f over g rather than to defer this choice if and only if the expected utility of f is greater that or equal to the expected utility of g for every probability measure in a convex and closed set Delta. This set is interpreted as a collection of the decision maker's possible future beliefs. When choices cannot be deferred, the decision maker evaluates every uncertain prospect via an epsilon-mixture of the least favorable element in the set Delta and her current probabilistic belief p in Delta. All components of my model are derived from observable preferences in an essentially unique way.

Keywords: Choice deferral; ambiguity aversion; epsilon contamination; multiple priors model; subjective probability; Ellsberg Paradox (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2009-06-09
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Citations: View citations in EconPapers (47)

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