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19
Ellsberg revisited: An experimental study
 Econometrica
, 2007
"... An extension to Ellsberg’s experiment demonstrates that attitudes to ambiguity and compound objective lotteries are tightly associated. The sample is decomposed into three main groups: subjective expected utility subjects, who reduce compound objective lotteries and are ambiguity neutral, and two gr ..."
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Cited by 65 (1 self)
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An extension to Ellsberg’s experiment demonstrates that attitudes to ambiguity and compound objective lotteries are tightly associated. The sample is decomposed into three main groups: subjective expected utility subjects, who reduce compound objective lotteries and are ambiguity neutral, and two groups that exhibit different forms of association between preferences over compound lotteries and ambiguity, corresponding to alternative theoretical models that account for ambiguity averse or seeking behavior.
Estimating Ambiguity Aversion in a Portfolio Choice Experiment
, 2009
"... We report a laboratory experiment that enables us to estimate four prominent models of ambiguity aversion — Subjective Expected Utility (SEU), Maxmin Expected Utility (MEU), Recursive Expected Utility (REU), and αMaxmin Expected Utility (αMEU) — at the level of the individual subject. We employ g ..."
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Cited by 53 (5 self)
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We report a laboratory experiment that enables us to estimate four prominent models of ambiguity aversion — Subjective Expected Utility (SEU), Maxmin Expected Utility (MEU), Recursive Expected Utility (REU), and αMaxmin Expected Utility (αMEU) — at the level of the individual subject. We employ graphical representations of threedimensional budget sets over bundles of Arrow securities, one of which promises a unit payoff with a known probability and two with unknown (ambiguous) probabilities. The sample exhibits considerable heterogeneity in preferences, as captured through parameter estimates. Nonetheless, there exists a strong tendency to equate the demands for The experiment was conducted at the Experimental Social Science Laboratory (XLab) at UC Berkeley. We thank Raymond Fisman for detailed comments and suggestions. We are also grateful to Yoram Halevy, Tom Palfrey, Chris Shannon, and Bill Zame for helpful discussions. This paper has also benefited from suggestions by the participants
Recursive Smooth Ambiguity Preferences
, 2007
"... This paper axiomatizes an intertemporal version of the Smooth Ambiguity decision model developed in Klibanoff, Marinacci, and Mukerji (2005). A key feature of the model is that it achieves a separation between ambiguity, identified as a characteristic of the decision maker’s subjective beliefs, and ..."
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Cited by 39 (4 self)
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This paper axiomatizes an intertemporal version of the Smooth Ambiguity decision model developed in Klibanoff, Marinacci, and Mukerji (2005). A key feature of the model is that it achieves a separation between ambiguity, identified as a characteristic of the decision maker’s subjective beliefs, and ambiguity attitude, a characteristic of the decision maker’s tastes. In applications one may thus specify/vary these two characteristics independent of each other, thereby facilitating richer comparative statics and modeling flexibility than possible under other models which accomodate ambiguity sensitive preferences. Another key feature is that the preferences are dynamically consistent and have a recursive representation. Therefore techniques of dynamic programming can be applied when using this model.
Axiomatic foundations of multiplier preferences
, 2007
"... This paper axiomatizes the robust control criterion of multiplier preferences introduced by Hansen and Sargent (2001). The axiomatization relates multiplier preferences to other classes of preferences studied in decision theory. Some properties of multiplier preferences are generalized to the broade ..."
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Cited by 33 (3 self)
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This paper axiomatizes the robust control criterion of multiplier preferences introduced by Hansen and Sargent (2001). The axiomatization relates multiplier preferences to other classes of preferences studied in decision theory. Some properties of multiplier preferences are generalized to the broader class of variational preferences, recently introduced by Maccheroni, Marinacci and Rustichini (2006). The paper also establishes a link between the parameters of the multiplier criterion and the observable behavior of the agent. This link enables measurement of the parameters on the basis of observable choice data and provides a useful tool for applications. I am indebted to my advisor Eddie Dekel for his continuous guidance, support, and encouragement. I am grateful to Peter Klibanoff and Marciano Siniscalchi for many discussions which resulted in significant improvements of the paper. I would also like to thank Jeff Ely and Todd Sarver for helpful comments and suggestions. This project started after a very stimulating conversation with Tom Sargent and was further shaped by conversations with Lars Hansen. All errors are my own.
Ambiguity without a State Space
, 2003
"... Many decisions involve both imprecise probabilities and intractable states of the world. Objective expected utility assumes unambiguous probabilities; subjective expected utility assumes a completely specified state space. This paper analyzes a third domain of preference: sets of consequential lotte ..."
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Cited by 29 (2 self)
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Many decisions involve both imprecise probabilities and intractable states of the world. Objective expected utility assumes unambiguous probabilities; subjective expected utility assumes a completely specified state space. This paper analyzes a third domain of preference: sets of consequential lotteries. Using this domain, we develop a theory of Knightian ambiguity without explicitly invoking any state space. We characterize a representation that integrates a monotone transformation of first order expected utility with respect to a second order measure. The concavity of the transformation and the weighting of the measure capture ambiguity aversion. We propose a definition for comparative ambiguity aversion and uniquely characterize absolute ambiguity neutrality. Finally, we discuss applications of the theory: reinsurance, games, and a mean–variance–ambiguity portfolio frontier.
Subjective beliefs and exante trade
 ECONOMETRICA, VOL. 76, NO. 5 (SEPTEMBER, 2008), 1167–1190
, 2008
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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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Cited by 8 (0 self)
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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.
Decisionmaking in the context of imprecise probabilistic beliefs. Working paper
, 2007
"... Coherent imprecise probabilistic beliefs are modelled as incomplete comparative likelihood relations admitting a multipleprior representation. Under a structural assumption of Equidivisibility, we provide an axiomatization of such relations and show uniqueness of the representation. In the second ..."
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Cited by 8 (3 self)
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Coherent imprecise probabilistic beliefs are modelled as incomplete comparative likelihood relations admitting a multipleprior representation. Under a structural assumption of Equidivisibility, we provide an axiomatization of such relations and show uniqueness of the representation. In the second part of the paper, we formulate a behaviorally general axiom relating preferences and probabilistic beliefs which implies that preferences over unambiguous acts are probabilistically sophisticated and which entails representability of preferences over Savage acts in an AnscombeAumannstyle framework. The motivation for an explicit and separate axiomatization of beliefs for the study of decisionmaking under ambiguity is discussed in some detail. 1.
Sharing Risk and Ambiguity
, 2008
"... We study the market implications of ambiguity in many common models. We show that generic determinacy is a robust feature in many general equilibrium models that allow a distinction between ambiguity and risk. ..."
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Cited by 5 (0 self)
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We study the market implications of ambiguity in many common models. We show that generic determinacy is a robust feature in many general equilibrium models that allow a distinction between ambiguity and risk.
Modeling implications of sourceinvariance to Machina’s ‘almost objective fair bets’, mimeo
, 2007
"... Machina (2004) introduced the notion of an ‘almost objective ’ event in a continuous state space—high frequency events in a subjective setting such as ‘the realization of the nth decimal place of a stock index. ’ Payoffs on such events intuitively appear as objective lotteries in the sense that deci ..."
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Cited by 4 (2 self)
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Machina (2004) introduced the notion of an ‘almost objective ’ event in a continuous state space—high frequency events in a subjective setting such as ‘the realization of the nth decimal place of a stock index. ’ Payoffs on such events intuitively appear as objective lotteries in the sense that decision makers should not prefer to place bets on any particular digit when n is large even if the state space is fully subjective. This paper investigates the implications of requiring decision makers to treat almost objective events the same regardless of their source (e.g., regardless of the identity of the stock index). Multiprior models in which the set of representing priors are smooth (i.e., possess densities) can accommodate such source indifference. The major contribution of this paper is to demonstrate that, under mild behavioral conditions, a multiprior representation with smooth priors is also necessary.