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

Blavatskyy, Pavlo R., Comparative and Absolute Ambiguity Aversion (April 4, 2019). Available at SSRN: https://ssrn.com/abstract=3434932 or http://dx.doi.org/10.2139/ssrn.3434932

Pavlo R. Blavatskyy (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

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