Comparative and Absolute Ambiguity Aversion
10 Pages Posted: 13 Aug 2019
Date Written: April 4, 2019
Abstract
A simplified definition of comparative ambiguity aversion (or uncertainty aversion, or aversion to Knightian uncertainty) via probability equivalents of binary Savage (1954) acts is proposed. Absolute ambiguity aversion is then defined as ambiguity aversion relative to a benchmark ambiguity neutral preference. The proposed simplified definitions do not require different decision makers to have the same cardinal utility function over outcomes (in contrast to the existing literature). The proposed simplified definitions naturally correspond to monotonicity conditions for capacities of biseparable preferences (that include inter alia subjective expected utility, Choquet expected utility, multiple priors or maxmin expected utility and α-maxmin utility).
Keywords: Uncertainty; Ambiguity; Ambiguity Aversion; Probability Equivalent; Subjective Expected Utility
JEL Classification: D89
Suggested Citation: Suggested Citation