A Bayesian Approach to Uncertainty Aversion
The Ellsberg paradox demonstrates that people's beliefs over uncertain events might not be representable by subjective probability. We show that if a risk averse decision maker, who has a well defined Bayesian prior, perceives an Ellsberg type decision problem as possibly composed of a bundle of several positively correlated problems, she will be uncertainty averse. We generalize this argument and derive sufficient conditions for uncertainty aversion. Copyright The Review of Economic Studies Limited, 2005.
Year of publication: |
2005
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Authors: | Halevy, Yoram ; Feltkamp, Vincent |
Published in: |
Review of Economic Studies. - Wiley Blackwell, ISSN 0034-6527. - Vol. 72.2005, 2, p. 449-466
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Publisher: |
Wiley Blackwell |
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