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A Lot of Ambiguity

Zvi Safra and Uzi Segal ()
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Zvi Safra: Warwick Business School

No 954, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We consider a risk averse decision maker who dislikes ambiguity as in the Ellsberg urns and compare the certainty equivalent of this gamble with the certainty equivalent of the anchoring probabilistic lottery. We deal first with the Choquet EU model and show that un- der some conditions on the capacity nu, when independent ambiguous gambles are repeated and the expected value of the anchoring lot- tery is zero, the difference between the average ambiguous and risky certainty equivalents converges to zero. When the parallel expected value is positive, we show that if the average certainty equivalent of the risky lottery is non-negative, then so is the limit of the average value for the ambiguous model. These results do not extend to the maxmin model or to the smooth recursive model.

Keywords: Ellsberg urns; repeated ambiguity; repeated risk; Choquet expected utility; maxmin (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2018-06-15, Revised 2020-03-31
New Economics Papers: this item is included in nep-knm and nep-upt
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