Ellsberg's two-color experiment, portfolio inertia and ambiguity
Sujoy Mukerji () and
Jean-Marc Tallon ()
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Results in this paper relate the observation of an interval of prices at which a decision maker (DM) strictly prefers to hold a zero position on an asset (termed "portfolio inertia") to the DM's perception of the underlying payoff relevant events as ambiguous, as the term is defined in [Econometrica 69 (2001) 265]. The connection between portfolio inertia and ambiguity is established without invoking a parametric preference form, such as the Choquet expected utility or the max–min multiple priors model. This allows us to draw an observable distinction between portfolio inertia that may arise purely due to first-order risk aversion type effects, such as those which could arise even if preferences were probabilistically sophisticated, and portfolio inertia that involves ambiguity perceptions.
Keywords: Ellsberg paradox; Portfolio inertia; Testing for ambiguity aversion; Uncertainty aversion; Unforeseen contingencies; Subjective state space (search for similar items in EconPapers)
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Published in Journal of Mathematical Economics, Elsevier, 2003, 39 (3-4), pp.299-316. ⟨10.1016/S0304-4068(03)00009-0⟩
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00499358
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