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Title: Dual‐Self Representations of Ambiguity Preferences
We propose a class of multiple‐prior representations of preferences under ambiguity, where the belief the decision‐maker (DM) uses to evaluate an uncertain prospect is the outcome of a game played by two conflicting forces, Pessimism and Optimism. The model does not restrict the sign of the DM's ambiguity attitude, and we show that it provides a unified framework through which to characterize different degrees of ambiguity aversion, and to represent the co‐existence of negative and positive ambiguity attitudes within individuals as documented in experiments. We prove that our baseline representation, dual‐self expected utility (DSEU) , yields a novel representation of the class of invariant biseparable preferences (Ghirardato, Maccheroni, and Marinacci (2004)), which drops uncertainty aversion from maxmin expected utility (Gilboa and Schmeidler (1989)), while extensions of DSEU allow for more general departures from independence. We also provide foundations for a generalization of prior‐by‐prior belief updating to our model.  more » « less
Award ID(s):
1824324
PAR ID:
10358632
Author(s) / Creator(s):
; ; ;
Date Published:
Journal Name:
Econometrica
Volume:
90
Issue:
3
ISSN:
0012-9682
Page Range / eLocation ID:
1029 to 1061
Format(s):
Medium: X
Sponsoring Org:
National Science Foundation
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