CFDP 2180R
Boolean Representations of Preferences under Ambiguity
Author(s):Publication Date: June 2019
Revision Date: July 2019
Pages: 41
Abstract:
We propose a class of multiple-prior representations of preferences under ambiguity where the belief the decision-maker (DM) uses to evaluate an uncertain prospect is the outcome of a game played by two conflicting forces, Pessimism and Optimism. The model does not restrict the sign of the DM’s ambiguity attitude, and we show that it provides a unified framework through which to characterize different degrees of ambiguity aversion, as well as to represent context-dependent negative and positive ambiguity attitudes documented in experiments. We prove that our baseline representation, Boolean expected utility (BEU), yields a novel representation of the class of invariant biseparable preferences (Ghirardato, Maccheroni, and Marinacci, 2004), which drops uncertainty aversion from maxmin expected utility (Gilboa and Schmeidler, 1989), while extensions of BEU allow for more general departures from independence.
Keywords: Ambiguity, Multiple priors, Dual-self models
JEL Classification Codes: D81
JEL Classification Codes: D81
See CFDP Version(s): CFDP 2180CFDP 2180R2CFDP 2180R3