Abstract
This paper studies a model in which in period 1, a decision-maker chooses a set of lotteries and in period 2, Nature chooses a lottery from the set chosen by the decision-maker and the decision-maker consumes the lottery chosen by Nature. Larger sets are interpreted as representing more ambiguous objective information about the lottery that will be consumed. The axioms imposed on preferences over sets of lotteries generalize those often imposed on preferences over single lotteries in the existing literature. A decision-maker who satisfies these axioms evaluates sets of lotteries according to a weighted average of the expected utilities of the best and the worst lottery in a set, with the weights interpreted as a measure of (comparative) attitude to objective ambiguity.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 567-595 |
| Number of pages | 29 |
| Journal | Review of Economic Studies |
| Volume | 74 |
| Issue number | 2 |
| DOIs | |
| State | Published - Apr 2007 |
Funding
Acknowledgements. I am grateful to Walter Bossert and Peter Klibanoff for their remarks and suggestions regarding related literature. I am grateful to the workshop and conference participants, especially Eddie Dekel and Marciano Siniscalchi, for their comments. I would also like to thank the editor and two referees for valuable suggestions. I thank the National Science Foundation (grant SES-0453061) for financial support.
ASJC Scopus subject areas
- Economics and Econometrics