CFDP 1667

Affective Decision Making and the Ellsberg Paradox

Author(s): 

Publication Date: June 2008

Pages: 9

Abstract: 

We characterize, in the framework for variational preferences, the affective decision making model of choice under risk and uncertainty introduced by Bracha and Brown (2007). This characterization (i) provides a rigorus decision-theoretic foundation for affective decision making, (ii) offers an axiomatic explanation for ambiguity-seeking in the Ellsberg Paradox and (iii) suggests a dual representation of ADM games in terms of the Legendre-Fenchel conjugate.

Keywords: 

Ellsberg paradox, Schmeidler’s axiom, Affective decision making, Variational preferences, Legendre-Fenchel conjugate

JEL Classification Codes:  D01, D81, G22