A Bayesian Approach to Uncertainty Aversion

The Ellsberg Paradox demonstrates that people's belief over uncertain events might not be representable by subjective probability. We show that if a risk averse decision maker, who has a well defined Bayesian prior, perceives an Ellsberg type decision problem as possibly composed of a bundle of several positively correlated problems - she will be uncertainty averse. We generalize this argument and derive sufficient conditions for uncertainty aversion.

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Year of publication:	2004-02-13
Authors:	Halevy, Yoram ; Feltkamp, Vincent
Institutions:	Vancouver School of Economics
Subject:	Ellsberg Paradox \| rule rationality \| ambiguity aversion \| risk aversionm subjective probability \| reduction of compound lotteries

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Extent:	application/pdf
Series:	Microeconomics.ca working papers.
Type of publication:	Book / Working Paper
Notes:	0 pages
Classification:	D81 - Criteria for Decision-Making under Risk and Uncertainty
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004977025