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This paper extends Savage's subjective approach to probability and utility from decision problems under exogenous uncertainty to choice in strategic environments. Interactive uncertainty is modeled both explicitly, using hierarchies of preference relations, the analogue of beliefs hierarchies,...
Persistent link: https://www.econbiz.de/10011700273
One of the most well-known models of non-expected utility is Gul (1991)'s model of Disappointment Aversion. This model, however, is defined implicitly, as the solution to a functional equation; its explicit utility representation is unknown, which may limit its applicability. We show that an...
Persistent link: https://www.econbiz.de/10012415476
Persistent link: https://www.econbiz.de/10009307150
We study the problem of elicitation of subjective beliefs of an agent when the beliefs are ambiguous (the set of beliefs is a non-singleton set) and the agent's preference exhibits ambiguity aversion; in particular, as represented by alpha-maxmin preferences. We construct a direct revelation...
Persistent link: https://www.econbiz.de/10012969749
This chapter reviews developments in the theory of decision making under risk and uncertainty, focusing on models that … “linearity in the probabilities” aspect of expected utility theory to game theory. The chapter consists of two main parts: The …-dependent utility models and cumulative prospect theory. The second part reviews theories of decision making under uncertainty that …
Persistent link: https://www.econbiz.de/10014025442
We define and discuss Savage games, which are ordinal games of incomplete information set in L. J. Savage's framework of purely subjective uncertainty. Every Bayesian game is ordinally equivalent to a Savage game. However, Savage games are free of priors, probabilities and payoffs. Players'...
Persistent link: https://www.econbiz.de/10013063668
We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing) equilibrium prices under...
Persistent link: https://www.econbiz.de/10010371082
We provide an axiomatic approach to a belief formation process in an informational environment characterized by limited, heterogenous and differently precise information. For a list of previously observed cases an agent needs to express her belief by assigning probabilities to possible outcomes....
Persistent link: https://www.econbiz.de/10010356678
We provide an evolutionary foundation to evidence that in some situations humans maintain optimistic or pessimistic attitudes towards uncertainty and are ignorant to relevant aspects of the environment. Players in strategic games face Knightian uncertainty about opponents' actions and maximize...
Persistent link: https://www.econbiz.de/10010366542
Nash is famous for many inventions, but it is less known that he, simultaneously with Marschak, also was the first to axiomatize expected utility for risk. In particular, these authors were the first to state the independence condition, a condition that should have been but was not stated by von...
Persistent link: https://www.econbiz.de/10012989344