A theory of subjective compound lotteries |
| |
Authors: | Haluk Ergin |
| |
Institution: | a Washington University in St. Louis, United States b Department of Economics, Princeton University, Fisher Hall, Princeton, NJ 08544, United States |
| |
Abstract: | We develop a Savage-type model of choice under uncertainty in which agents identify uncertain prospects with subjective compound lotteries. Our theory permits issue preference; that is, agents may not be indifferent among gambles that yield the same probability distribution if they depend on different issues. Hence, we establish subjective foundations for the Anscombe-Aumann framework and other models with two different types of probabilities. We define second-order risk as risk that resolves in the first stage of the compound lottery and show that uncertainty aversion implies aversion to second-order risk which implies issue preference and behavior consistent with the Ellsberg paradox. |
| |
Keywords: | D81 |
本文献已被 ScienceDirect 等数据库收录! |
|