Ellsberg Paradox Intuition and Choquet Expected Utility

Alain Chateauneuf
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Alain Chateauneuf: Université Paris I, Cermsem

A chapter in Mathematical Models for Handling Partial Knowledge in Artificial Intelligence, 1995, pp 1-20 from Springer

Abstract: Abstract The aim of this paper is to introduce through two interpretations of Ellsberg paradox, Choquet expected utility (C.E.U.) models, a popular class of models introduced separately by Quiggin (1982), Yaari (1987) and Schmeidler (1982, 1989). Such models based on Choquet integral (Choquet (1954)) offer flexible but simple formulas, explain paradoxes of Allais (1953) under risk and of Ellsberg (1961) under uncertainty; moreover they allow to separate perception of uncertainty or risk from the valuation of outcomes. Here we emphasize the intuitive and appealing meaning of “comonotonicity”, and show the ability of C.E.U. models in modeling attitudes towards uncertainty and risk. A simple characterization of C.E.U. model, as in Chateauneuf (1994 a), is proposed, under the restrictive assumption of constant marginal utility for wealth. The general model, removing this restriction, is evocated in conclusion. Some economic applications are also quoted.

Keywords: Risk Aversion; Certainty Equivalent; CHOQUET Expect Utility; Uncertainty Aversion; Subjective Expected Utility (search for similar items in EconPapers)
Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4899-1424-8_1

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DOI: 10.1007/978-1-4899-1424-8_1

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