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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...
Persistent link: https://www.econbiz.de/10004970939
We study a competitive market for a homogeneous good, in which the only uncertainty concerns the number of identical sellers, who are sampled by a finite Poisson process from a continuum of potential participants. It is shown that, in equilibrium, there is price dispersion. Specifically, prices...
Persistent link: https://www.econbiz.de/10004975582
A decision maker with time consistent preferences may exhibit diminishing impatience, when uncertain lifetime is accounted for. Uncertain lifetime captures not only the risk of mortality, but also the possibility that a promise for a delayed reward might be breached, or a postponed consumption...
Persistent link: https://www.econbiz.de/10004977024
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...
Persistent link: https://www.econbiz.de/10004977025
The Ellsberg experiments provide an intuitive illustration that the Savage approach, which reduces subjective uncertainty to risk, is not rich enough to capture many decision makers' preferences. Recent experimental evidence suggests that decision makers reduce uncertainty to compound risk. This...
Persistent link: https://www.econbiz.de/10004977976
Decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward. This work argues that diminishing impatience originates from the distinction between the certain present and the...
Persistent link: https://www.econbiz.de/10004977977
We study choice between bets on the colors of two balls, where one ball is drawn from each of two urns. Though you are told the same about each urn, you are told very little, so that you are not given any reason to be certain that the compositions are identical. We identify choices that reveal...
Persistent link: https://www.econbiz.de/10011106061
We demonstrate how the standard usage of the random incentive system in ambiguity experiments is not incentive compatible if the decision maker is ambiguity averse. We propose a slight modification of the procedure in which the randomization takes place before decisions are made and the state is...
Persistent link: https://www.econbiz.de/10011165407