Hostname: page-component-6b989bf9dc-g5k2d Total loading time: 0 Render date: 2024-04-14T12:26:42.478Z Has data issue: false hasContentIssue false
  • English
  • Français

COPING RATIONALLY WITH AMBIGUITY: ROBUSTNESS VERSUS AMBIGUITY-AVERSION

Published online by Cambridge University Press:  10 November 2009

Klaus Nehring
Klaus Nehring*
Affiliation:
University of California, Davis
Get access Rights & Permissions [Opens in a new window]

Abstract

Al-Najjar and Weinstein (2009) argue that the extant literature on ambiguity aversion is not successful in accounting for Ellsberg choices as rational responses to ambiguity. We concur, and propose that rational choice under ambiguity aims at robustness rather than avoidance of ambiguity. A central argument explains why robust choice is intrinsically context-dependent and legitimately violates standard choice consistency conditions. If choice consistency is forced, however, ambiguity-aversion emerges as a semi-rational response to ambiguity.

Type
Essay
Information
Economics & Philosophy , Volume 25 , Issue 3: Economics and Philosophy on Ambiguity Aversion , November 2009 , pp. 303 - 334
Copyright
Copyright © Cambridge University Press 2009

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Al-Najjar, N. and Weinstein, J.. 2009. The ambiguity-aversion literature: a critical assessment. Economics and Philosophy 25: this volume.CrossRefGoogle Scholar
Anscombe, F. J. and Aumann, R. J.. 1963. A definition of subjective probability. Annals of Mathematical Statistics 34: 199–205.CrossRefGoogle Scholar
Arrow, K. J. 1960. Decision theory and the choice of a level of significance for the t-test. In Contributions to probability and statistics: Essays in the honor of Harold Hotelling, ed. Olkin, I. et al. , 70–78. Stanford: Stanford University Press.Google Scholar
Arrow, K. J. and Hurwicz, L.. 1972. An optimality criterion for decision-making under ignorance. In Uncertainty and expectations in economics, ed. Carter, D.F. and Ford, F., Oxford: Oxford University Press.Google Scholar
Aumann, R. J. 1962. Utility theory without the completeness axiom. Econometrica 30: 445–62.CrossRefGoogle Scholar
Bewley, T. F. 1986. Knightian decision theory, Part I. Cowles Foundation Discussion Paper No. 807.Google Scholar
Bewley, T. F. 2002. Knightian decision theory, Part I. Decisions in Economics and Finance 25: 79–110.CrossRefGoogle Scholar
Chernoff, H. 1954. Rational selection of decision functions. Econometrica 22: 422–43.CrossRefGoogle Scholar
Chew, S.-H. and Sagi, J.. 2008. Small worlds: modeling attitudes toward sources of uncertainty. Journal of Economic Theory 139: 1–24.CrossRefGoogle Scholar
Ellsberg, D. 1961. Risk, ambiguity, and the Savage axioms. Quarterly Journal of Economics 75: 643–69.CrossRefGoogle Scholar
Ergin, H. and Gul, F.. 2009. A theory of subjective compound lotteries. Journal of Economic Theory 144: 899–929.CrossRefGoogle Scholar
Gajdos, T., Hayashi, T., Tallon, J.-M., and Vergnaud, J.-C.. 2008. Attitude toward imprecise information. Journal of Economic Theory 140: 23–56.CrossRefGoogle Scholar
Ghirardato, P., Maccheroni, F., Marinacci, M. and Siniscalchi, M.. 2003. A subjective spin on roulette wheels. Econometrica 71: 1897–908.CrossRefGoogle Scholar
Ghirardato, P., Maccheroni, F. and Marinacci, M.. 2004. Differentiating ambiguity and ambiguity attitude. Journal of Economic Theory 118: 133–73.CrossRefGoogle Scholar
Gilboa, I. and Schmeidler, D.. 1989. Maxmin expected utility with a non-unique prior. Journal of Mathematical Economics 18: 141–53.CrossRefGoogle Scholar
Gilboa, I., Maccheroni, F., Marinacci, M., and Schmeidler, D.. 2008. Objective and Subjective Rationality in a Multiple Prior Model. Mimeo.Google Scholar
Gul, F. and Pesendorfer, W.. 2008. The case for mindless economics. In Foundations of Positive and Normative Economics, ed. Caplin, A. and Schotter, A., New York: Oxford University Press.Google Scholar
Hacking, I. 1975. The Emergence of Probability. Cambridge: Cambridge University Press.Google Scholar
Hajek, A. 2008. Pascal's wager. In Stanford Encyclopedia of Philosophy, available at http://plato.stanford.edu/entries/pascal-wager/.Google Scholar
Hansen, L. and Sargent, T.. 2001a. Acknowledging misspecification in macroeconomic theory. Review of Economic Dynamics 4: 519–35.CrossRefGoogle Scholar
Hansen, L. and Sargent, T.. 2001b. Robust control and model uncertainty. American Economic Review 91: 60–6.CrossRefGoogle Scholar
Kalai, E., Smorodinsky, M.. 1975. Other solutions to Nash's bargaining problem. Econometrica 43: 513–18.CrossRefGoogle Scholar
Jaynes, E. T. 1957. Information theory and statistical mechanics. Physical Review 106: 620–30.CrossRefGoogle Scholar
Jaynes, E. T. 2003. Probability theory: the logic of science. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Levi, I. 1980. The enterprise of knowledge. Cambridge, MA: MIT Press.Google Scholar
Luce, R. D. and Raiffa, H.. 1957. Games and decisions. New York: John Wiley.Google Scholar
Machina, M. and Schmeidler, D.. 1992. A more robust definition of subjective probability. Econometrica 60: 745–80.CrossRefGoogle Scholar
Marinacci, M. 2002. Probabilistic sophistication and multiple priors. Econometrica 70: 755–64.CrossRefGoogle Scholar
Milnor, J. 1954. Games against nature. In Decision processes, ed. Thrall, Coombs and Davis, 49–59. New York: John Wiley.Google Scholar
McClennen, E. 2009. The normative status of the independence principle. In Rational and social choice. ed. Anand, P., Pattanaik, P., and Puppe, C.. New York: Oxford University Press.Google Scholar
Moulin, H. 1985. Choice functions over a finite set: a summary. Social Choice and Welfare 2: 147–60.CrossRefGoogle Scholar
Nehring, K. 1991. A theory of rational decision with vague beliefs. Ph.D. dissertation, Harvard University.Google Scholar
Nehring, K. 1992. Foundations for the theory of rational choice with vague priors. In Decision making under uncertainty - new models and empirical findings, ed. Geweke, J., 231–242. Dordrecht: Kluwer.CrossRefGoogle Scholar
Nehring, K. 2000. Rational choice under ignorance. Theory and Decision 48: 205–40.CrossRefGoogle Scholar
Nehring, K. 2007. Bernoulli without Bayes: A Theory of Utility-Sophisticated Preference. Mimeo, UC Davis.Google Scholar
Nehring, K. 2009. Imprecise probabilistic beliefs as a context for decision-making under ambiguity. Journal of Economic Theory 144: 1054–91.CrossRefGoogle Scholar
Plott, C. R. 1973. Path independence, rationality and social choice. Econometrica 41: 1075–91.CrossRefGoogle Scholar
Rigotti, L. and Shannon, C.. 2005. Uncertainty and risk in financial markets. Econometrica 73: 203–43.CrossRefGoogle Scholar
Savage, L. J. 1951. The theory of statistical decision. Journal of the American Statistical Association 46: 55–67.CrossRefGoogle Scholar
Savage, L. J. 1954. The foundations of statistics. New York: Wiley. Second edition 1972, Dover.Google Scholar
Schmeidler, D. 1989. Subjective probability and expected utility without additivity. Econometrica 57: 571–87.CrossRefGoogle Scholar
Sen, A. 1973. Behavior and the concept of preference. Economica 40: 241–59.CrossRefGoogle Scholar
Siniscalchi, M. 2006. Electronic supplement to A behavioral characterization of plausible priors. Journal of Economic Theory 128: 91–135.CrossRefGoogle Scholar
Tversky, A. and Wakker, P.. 1995. Risk. attitudes and decision weights. Econometrica 63: 1255–80.CrossRefGoogle Scholar
Von Kries, J. 1886. Principien der Wahrscheinlichkeitsrechnung, eine logische Untersuchung.Google Scholar
Walley, P. 1991. Statistical reasoning with imprecise probabilities. London: Chapman and Hall.CrossRefGoogle Scholar