Perceived Ambiguity and Relevant Measures
Peter Klibanoff, Sujoy Mukerji, Kyoungwon Seo
Econometrica · 2014 · Volume 82 · Issue 5
Abstract
We axiomatize preferences that can be represented by a monotonic aggregation of subjective expected utilities generated by a utility function and some set of i.i.d. probability measures over a product state space,S∞. For such preferences, we definerelevant measures, show that they are treated as if they were the only marginals possibly governing the state space, and connect them with the measures appearing in the aforementioned representation. These results allow us to interpret relevant measures as reflecting part ofperceived ambiguity, meaning subjective uncertainty about probabilities over states. Under mild conditions, we show that increases or decreases in ambiguity aversion cannot affect the relevant measures. This property, necessary for the conclusion that these measures reflectonlyperceived ambiguity, distinguishes the set of relevant measures from the leading alternative in the literature. We apply our findings to a number of well-known models of ambiguity-sensitive preferences. For each model, we identify the set of relevant measures and the implications of comparative ambiguity aversion.
Keywords
Symmetry, beliefs, ambiguity, ambiguity aversion, sets of probabilities
Enable JavaScript for citation tools and additional paper interactions.