Cautious and Globally Ambiguity Averse

Ozgur Evren

No w0236, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: I study ambiguity attitudes in Uzi Segal's recursive non-expected utility model. I show that according to this model, the negative certainty independence axiom over simple lotteries is equivalent to a robust, or global form of ambiguity aversion that requires ambiguity averse behavior irrespective of the number of states and the decision maker's second-order belief. Thus, the recursive cautious expected utility model is the only subclass of Segal's model that robustly predicts ambiguity aversion. Similarly, the independence axiom over lotteries is equivalent to a robust form of ambiguity neutrality. In fact, any non-expected utility preference over lotteries coupled with a suitable second-order belief over three states produces either the Ellsberg paradox or the opposite mode of behavior. Finally, I propose a definition of a mean-preserving spread for second-order beliefs that is equivalent to increasing ambiguity aversion for every recursive preference that satisfies the negative certainty independence axiom.

Keywords: Ambiguity Aversion; Ellsberg Paradox; Allais Paradox; Negative Certainty Independence; Reduction of Compound Lotteries; Increasing Second-Order Uncertainty (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2017-01
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cefir.ru/papers/WP236.pdf (application/pdf)

Related works:
Working Paper: Cautious and Globally Ambiguity Averse (2017)
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: https://EconPapers.repec.org/RePEc:cfr:cefirw:w0236

Access Statistics for this paper

More papers in Working Papers from Center for Economic and Financial Research (CEFIR) Contact information at EDIRC.
Bibliographic data for series maintained by Julia Babich (juliababich@gmail.com).