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A Lot of Ambiguity

Author

Listed:
  • Zvi Safra

    (Warwick Business School
    Tel Aviv University)

  • Uzi Segal

    (Boston College)

Abstract
We consider a risk averse decision maker who dislikes ambiguity as in the Ellsberg urns and compare the certainty equivalent of this gamble with the certainty equivalent of the anchoring probabilistic lottery. We deal first with the Choquet EU model and show that un- der some conditions on the capacity nu, when independent ambiguous gambles are repeated and the expected value of the anchoring lot- tery is zero, the difference between the average ambiguous and risky certainty equivalents converges to zero. When the parallel expected value is positive, we show that if the average certainty equivalent of the risky lottery is non-negative, then so is the limit of the average value for the ambiguous model. These results do not extend to the maxmin model or to the smooth recursive model.

Suggested Citation

  • Zvi Safra & Uzi Segal, 2018. "A Lot of Ambiguity," Boston College Working Papers in Economics 954, Boston College Department of Economics, revised 31 Mar 2020.
    • Handle: RePEc:boc:bocoec:954
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Ellsberg urns; repeated ambiguity; repeated risk; Choquet expected utility; maxmin;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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