Beyond Uncertainty Aversion

Brian Hill ()
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Brian Hill: HEC Paris

No 1349, HEC Research Papers Series from HEC Paris

Abstract: Although much of the theoretical literature on ambiguity works under the assumption of uncertainty aversion, experimental evidence suggests that it is not a universal behavioral trait. This paper introduces and axiomatises the family of α-UA (for α-Uncertainty Attitude) preferences: a simple extension of the family of uncertainty averse preferences (Cerreia-Vioglio et al., 2011b) with a Hurwicz-style mixing coefficient, so as to admit a richer range of uncertainty attitudes. The parameters of the model are uniquely identified in our characterisation. This provides, in the Hurwicz α-maxmin EU special case, a new resolution of a long-standing identification problem for this model. Moreover, it yields novel models as special cases, including extensions of variational and multiplier preferences (Maccheroni et al., 2006; Hansen and Sargent, 2001) beyond the assumption of uncertainty aversion. Comparative statics support the interpretation of the mixing coefficient as an index of imprecision aversion. In a standard portfolio problem, the model yields the intuitive relationship between imprecision aversion and investment in an uncertain asset: as the former increases, the latter decreases.

Keywords: ambiguity; uncertainty aversion; imprecision attitude; objective imprecision; multiple priors; alpha-maxmin EU preferences; multiplier preferences (search for similar items in EconPapers)
JEL-codes: D01 D80 D81 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2019-09-27
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1349

DOI: 10.2139/ssrn.3460128

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