Confidence and ambiguity

Brian Hill ()

No 914, HEC Research Papers Series from HEC Paris

Abstract: This paper proposes a model of the decision-maker’s confidence in his probability judgements, in terms of an implausibility measure – a real-valued function on the set of probability functions. A decision rule is axiomatised according to which the decision-maker evaluates acts using sets of probability functions which vary depending on the agent’s implausibility measure and on what is at stake in the choice of the act. The framework proposed yields a natural notion of comparative aversion to lack of confidence, or ambiguity aversion, and allows the definition of an ambiguity premium. It is shown that these notions are equivalent and can be characterised in terms of the implausibility measure representing the agent’s confidence. A simple portfolio example is presented.

Keywords: Confidence; multiple priors; ambiguity aversion; ambiguity premium; implausibility measure (search for similar items in EconPapers)
JEL-codes: C69 D81 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2009-02-20
New Economics Papers: this item is included in nep-cbe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.hec.fr/var/fre/storage/original/applica ... c673f15910614460.PDF (application/pdf)

Related works:
Working Paper: Confidence and Ambiguity (2010)
Working Paper: Confidence and ambiguity (2009)
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:ebg:heccah:0914

Access Statistics for this paper

More papers in HEC Research Papers Series from HEC Paris HEC Paris, 78351 Jouy-en-Josas cedex, France. Contact information at EDIRC.
Bibliographic data for series maintained by Antoine Haldemann ().