The preference reversal phenomenon is one of the most important, long-standing, and widespread anomalies contradicting economic models of decisions under risk. It describes the robust observation of frequent "standard reversals" where long-shot gambles are valued above moderate ones but then the...

Two of the most well known regularities observed in preferences under risk and uncertainty are ambiguity aversion and the Allais paradox. We study the behav- ior of an agent who can display both tendencies simultaneously. We introduce a novel notion of preference for hedging that applies to both...