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Choice deferral and ambiguity aversion

Author

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  • ,

    (Department of Economics and Institute for Mathematical Behavioral Sciences, University of California, Irvine)

Abstract
When confronted with uncertain prospects, people often exhibit both choice deferral and Ellsberg-type ambiguity aversion. This paper obtains a joint representation for these behavioral phenomena. The decision maker as portrayed by my model is willing to choose an uncertain prospect f over g rather than to defer this choice if and only if the expected utility of f is greater that or equal to the expected utility of g for every probability measure in a convex and closed set Delta. This set is interpreted as a collection of the decision maker's possible future beliefs. When choices cannot be deferred, the decision maker evaluates every uncertain prospect via an epsilon-mixture of the least favorable element in the set Delta and her current probabilistic belief p in Delta. All components of my model are derived from observable preferences in an essentially unique way.

Suggested Citation

  • ,, 2009. "Choice deferral and ambiguity aversion," Theoretical Economics, Econometric Society, vol. 4(2), June.
    • Handle: RePEc:the:publsh:498
    as

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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20090199/2519/131
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    More about this item

    Keywords

    Choice deferral; ambiguity aversion; epsilon contamination; multiple priors model; subjective probability; Ellsberg Paradox;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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