Preferences under Ambiguity Without Event-Separability

Christopher Kops and Abhinash Borah

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: We propose and axiomatically characterize a representation of ambiguity sensitive preferences. The distinguishing feature of our axiomatization is that we do not require preferences to be event-wise separable over any domain of acts. Even without any such separability restrictions, we are able to uniquely elicit the decision maker's subjective probabilities. The novel axiom that allows us to do so expresses the idea that at least in the domain of a certain class of acts the decision maker exhibits a consistent tradeoff between risk and ambiguity concerns. Under our representation of her preferences, any act is assessed by its subjective expected utility and a residual that captures her assessment of the act's exposure to ambiguity.

JEL-codes: D00 D80 D81 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100629

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