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Randomization and Ambiguity Aversion

Author

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  • Shaowei Ke
  • Qi Zhang
Abstract
We propose a model of preferences in which the effect of randomization on ambiguity depends on how the unknown probability law is determined. We adopt the framework of Anscombe and Aumann (1963) and relax the axioms. In the resulting representation of the individual's preference, the individual has a collection of sets of priors M. She believes that before she moves, nature has chosen an unknown scenario (a set of priors) from M, and from that scenario, nature will choose a prior after she moves. The representation illustrates how randomization may partially eliminate the effect of ambiguity.

Suggested Citation

  • Shaowei Ke & Qi Zhang, 2020. "Randomization and Ambiguity Aversion," Econometrica, Econometric Society, vol. 88(3), pages 1159-1195, May.
    • Handle: RePEc:wly:emetrp:v:88:y:2020:i:3:p:1159-1195
    DOI: 10.3982/ECTA15182
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    13. Soheil Ghili & Peter Klibanoff, 2021. "If It Is Surely Better, Do It More? Implications for Preferences Under Ambiguity," Management Science, INFORMS, vol. 67(12), pages 7619-7636, December.
    14. Bade, Sophie, 2022. "Dynamic semi-consistency," Games and Economic Behavior, Elsevier, vol. 134(C), pages 117-126.
    15. Sarah Auster & Christian Kellner, 2023. "Timing Decisions Under Model Uncertainty," CRC TR 224 Discussion Paper Series crctr224_2023_460, University of Bonn and University of Mannheim, Germany.
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    19. Benjamin Monet & Vassili Vergopoulos, 2024. "Ambiguity, randomization and the timing of resolution of uncertainty," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1021-1045, December.
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