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30
Ambiguity Models and the Machina Paradoxes
 American Economic Review
, 2011
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MeanDispersion Preferences
, 2008
"... The starting point for this paper is the variational preference model introduced by Maccheroni et al [2006]), which includes GilboaSchmeidler multipleprior preferences and HansenSargent multiplier preferences. First, we show that any variational preferences admit a `primal' representation wi ..."
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The starting point for this paper is the variational preference model introduced by Maccheroni et al [2006]), which includes GilboaSchmeidler multipleprior preferences and HansenSargent multiplier preferences. First, we show that any variational preferences admit a `primal' representation with a natural interpretation: a `mean' expectedutility of the act minus a `dispersion measure' that depends only on statebystate differences from that mean. The second term can be thought of as re ecting the agent's dislike of dispersion: it is the premium (in terms of the mean utility) that the individual would be willing to pay to remove all subjective uncertainty associated with the act. The primal representation thus highlights a key behavioral aspect of all variational preferences: the premium does not depend on the average utility of an act. That is, variational preferences exhibit constant absolute ambiguity aversion. Second, we develop a generalization of the variational preference model. The generalization is still based on a mean utility and a dispersion measure that depends only on the statewise differences from the mean. But the new model is only weakly separable in terms of these two summary statistics. Thus, the ambiguity premium need not be constant in this model. Meandispersion preferences can accommodate many existing models. We show how these correspond to different attitudes toward dispersion. Finally, we use the model to compare di erent notions of aversion to variation across states such as uncertainty aversion, secondorder risk aversion and issue preference.
Attitudes toward uncertainty and randomization: An experimental study
, 2011
"... Subjects are randomizationloving if they prefer random mixtures of two bets to each of the involved bets. Various approaches appeal to such preferences in order to explain uncertainty aversion. We examine the relationship between uncertainty and randomization attitude experimentally. Our data sugge ..."
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Subjects are randomizationloving if they prefer random mixtures of two bets to each of the involved bets. Various approaches appeal to such preferences in order to explain uncertainty aversion. We examine the relationship between uncertainty and randomization attitude experimentally. Our data suggests that they are not negatively associated: most uncertaintyaverse subjects are randomizationneutral rather than loving. Surprisingly, a nonnegligible number of uncertaintyaverse subjects even seems to dislike randomization.
MeanDispersion Preferences and Constant Absolute Uncertainty Aversion.
, 2011
"... We axiomatize, in an AnscombeAumann framework, the class of preferences that admit a representation of the form V (f) = (d), where is the mean utility of the act f with respect to a given probability, d is the vector of statebystate utility deviations from the mean, and (d) is a measure of (aver ..."
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We axiomatize, in an AnscombeAumann framework, the class of preferences that admit a representation of the form V (f) = (d), where is the mean utility of the act f with respect to a given probability, d is the vector of statebystate utility deviations from the mean, and (d) is a measure of (aversion to) dispersion that corresponds to an uncertainty premium. The key feature of these meandispersion preferences is that they exhibit constant absolute uncertainty aversion. This class includes many wellknown models of preferences from the literature on ambiguity. We show what properties of the dispersion function ( ) correspond to known models, to probabilistic sophistication, and to some new notions of uncertainty aversion.
Decision theory under uncertainty
, 2009
"... We review recent advances in the field of decision making under uncertainty or ambiguity. ..."
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We review recent advances in the field of decision making under uncertainty or ambiguity.
When does aggregation reduce risk aversion?
, 2009
"... We study the problem of risk sharing within a household facing subjective uncertainty. A household shares uncertain prospects using a social welfare function. We characterize the social welfare functions such that the household is collectively less risk averse than each member, and satisfies the Par ..."
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We study the problem of risk sharing within a household facing subjective uncertainty. A household shares uncertain prospects using a social welfare function. We characterize the social welfare functions such that the household is collectively less risk averse than each member, and satisfies the Pareto principle and an independence axiom. We single out the sum of certainty equivalents as the unique member of this family which provides quasiconcave rankings over riskless allocations.
On the Smooth Ambiguity Model: A Reply
, 2009
"... Epstein (2009) describes three Ellsbergstyle thought experiments and argues that they pose di ¢ culties for the smooth ambiguity model of decision making under uncertainty developed by Klibano¤, Marinacci and Mukerji (2005). We revisit these thought experiments and …nd, to the contrary, that they e ..."
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Epstein (2009) describes three Ellsbergstyle thought experiments and argues that they pose di ¢ culties for the smooth ambiguity model of decision making under uncertainty developed by Klibano¤, Marinacci and Mukerji (2005). We revisit these thought experiments and …nd, to the contrary, that they either point to strengths of the smooth ambiguity model compared to other models, such as the maxmin expected utility model (Gilboa and Schmeidler, 1989), or, in the case of one thought experiment, raise criticisms that apply equally to a broad range of current ambiguity models. 1
Perceived Ambiguity and Relevant Measures∗
, 2013
"... This paper provides a method for identifying components of preference reflecting perceived ambiguity separate from increases and decreases in ambiguity aversion. Important to this method is the identification of a unique set of revealed probability assignments (called relevant measures) from prefe ..."
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This paper provides a method for identifying components of preference reflecting perceived ambiguity separate from increases and decreases in ambiguity aversion. Important to this method is the identification of a unique set of revealed probability assignments (called relevant measures) from preferences over acts. We show this method works for a large class of preferences that treat the state space as if it had a symmetric “i.i.d. with unknown parameters ” structure. Within this class, we characterize the relevant measures, show where they appear in a canonical representation and provide conditions under which they are separate from increases and decreases in ambiguity aversion. We apply our findings to a number of wellknown representations of ambiguitysensitive preferences. For each model, by identifying the set of relevant measures and the implications of comparative ambiguity aversion, we find components of these representations that reflect perceived ambiguity and others that reflect comparative ambiguity aversion.