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Ignorance and competence in choices under uncertainty

Paulo Casaca, Alain Chateauneuf () and José Faro ()
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Paulo Casaca: FIEMG - Federação das Indústrias do Estado de Minas Gerais, Cedeplar - Centro de Desenvolvimento e Planejamento Regional da UFMG - Universidade federal de Minas Gerais - UFMG (BRAZIL)

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Abstract: We propose a model of decision making that captures reluctance to bet when the decision maker (DM) perceives that she lacks adequate information or expertise about the underlying contingencies. On the other hand, the same DM can prefer to bet in situations where she feels specially knowledgeable or competent even if the underlying contingencies have vague likelihoods. This separation in terms of sources of uncertainty is motivated by the Heath and Tversky's competence hypothesis as well as by the Fox and Tversky's comparative ignorance effect. Formally, we characterize preference relations ≿ over Anscombe-Aumann acts represented by [formule] where u is an affine utility index on consequences, C is a nonempty, convex and (weak∗) compact subset of probabilities measures, and A is a referential chance event . In this model there is a clear separation of ambiguity attitudes. The case E⊂A captures possible familiar target events while the case E⊂Ac might refer to the case of relative ignorance concerning related contingencies. This model captures a special case of event dependence of ambiguity attitudes in which the well known maxmin model is a special case. We also characterize the case where we have a Choquet Expected Utility representation.

Keywords: Ambiguity; Competence hypothesis; Comparative ignorance effect; Maxmin preferences; Choquet expected utility (search for similar items in EconPapers)
Date: 2014-10
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01015299
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Published in Journal of Mathematical Economics, Elsevier, 2014, 54, pp.143-150. ⟨10.1016/j.jmateco.2014.02.005⟩

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Journal Article: Ignorance and competence in choices under uncertainty (2014) Downloads
Working Paper: Ignorance and Competence in Choices Under Uncertainty (2013) Downloads
Working Paper: Ignorance and Competence in Choices Under Uncertainty (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseose:hal-01015299

DOI: 10.1016/j.jmateco.2014.02.005

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