Beyond Uncertainty Aversion

Brian Hill ()
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Brian Hill: HEC Paris - Recherche - Hors Laboratoire - HEC Paris - Ecole des Hautes Etudes Commerciales, CNRS - Centre National de la Recherche Scientifique, GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

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Abstract: Although much of the theoretical and applied literature involving decision under ambiguity works under the assumption of uncertainty aversion, experimental evidence suggests that it is not a universal behavioural trait. This paper introduces and axiomatises the family of α-UA (for α-Uncertainty Attitude) preferences: a simple extension of uncertainty averse preferences 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. It provides, in the Hurwicz α-maxmin EU special case, a new resolution of a long-standing identification problem. It also yields novel models, including extensions of variational and multiplier preferences. 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: Decision under uncertainty; Ambiguity; Uncertainty aversion; Imprecision attitude; Objective imprecision; Multiple priors; α-maxmin EU; Multiplier preferences (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-mic and nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-02428398
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Citations: View citations in EconPapers (1)

Published in Games and Economic Behavior, 2023, 141, pp.196-222. ⟨10.1016/j.geb.2023.06.003⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02428398

DOI: 10.1016/j.geb.2023.06.003

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