Range Convexity and Ambiguity Averse Preferences

Paolo Ghirardato and Massimo Marinacci

No 1081, Working Papers from California Institute of Technology, Division of the Humanities and Social Sciences

Abstract: We show that range convexity of beliefs, a 'technical' condition that appears naturally in axiomatizations of preferences in a Savage-like framework, imposes some unexpected restrictions when modelling ambiguity averse preferences. That is, when it is added to a mild condition, range convexity makes the preferences collapse to subjective expected utility as soon as they satisfy structural conditions that are typically used to characterize ambiguity aversion.

Date: 2000-01
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