Publication Date: June 2019
Revision Date: June 2021
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, and to represent the co-existence of negative and positive ambiguity attitudes within individuals as documented in experiments. We prove that our baseline representation, dual-self expected utility (DSEU), 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 DSEU allow for more general departures from independence. We also provide foundations for a generalization of prior-by-prior belief updating to our model.
Keywords: Ambiguity, Multiple priors, Dual-self models
JEL Classification Codes: D81
JEL Classification Codes: D81See CFDP Version(s): CFDP 2180CFDP 2180RCFDP 2180R2