Definitions of Ambiguous Events and the Smooth Ambiguity Model

Sujoy Mukerji and Peter Klibanoff and Massimo Marinacci
Authors registered in the RePEc Author Service: Massimo Marinacci

No 525, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We examine a variety of preference-based definitions of ambiguous events in the context of the smooth ambiguity model. We first consider the definition proposed in Klibanoff, Marinacci, and Mukerji (2005) based on the classic Ellsberg two-urn paradox (Ellsberg (1961)), and show that it satisfies several desirable properties. We then compare this definition with those of Nehring (1999), Epstein and Zhang (2001), Zhang (2002) and Ghirardato and Marinacci (2002). Within the smooth ambiguity model, we show that Ghirardato and Marinacci (2002) would identify the same set of ambiguous and unambiguous events as our definition while Epstein and Zhang (2001) and Zhang (2002) would yield a different classification. Moreover, we discuss and formally identify two key sources of the differences compared to Epstein and Zhang (2001) and Zhang (2002). The more interesting source is that these two definitions can confound non-constant ambiguity attitude and the ambiguity of an event.

Keywords: Ambiguity; uncertainty; Knightian uncertainty; ambiguity aversion; uncertainty aversion; Ellsberg paradox (search for similar items in EconPapers)
JEL-codes: D80 D81 (search for similar items in EconPapers)
Date: 2011-01-01
New Economics Papers: this item is included in nep-upt
References: View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Journal Article: Definitions of ambiguous events and the smooth ambiguity model (2011)
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