TY - JOUR

T1 - Symmetry axioms and perceived ambiguity

AU - Klibanoff, Peter

AU - Mukerji, Sujoy

AU - Seo, Kyoungwon

N1 - Funding Information:
We thank the referees and the Editor for helpful comments. Seo gratefully acknowledges the financial support of the National Science Foundation (SES-0918248) and KAIST.
Publisher Copyright:
© 2017, The Author(s).

PY - 2018/1/1

Y1 - 2018/1/1

N2 - Since at least de Finetti (Annales de l’Institut Henri Poincare 7:1–68, 1937), preference symmetry assumptions have played an important role in models of decision making under uncertainty. In the current paper, we explore (1) the relationship between the symmetry assumption of Klibanoff et al. (KMS) (Econometrica 82:1945–1978, 2014) and alternative symmetry assumptions in the literature, and (2) assuming symmetry, the relationship between the set of relevant measures, shown by KMS (2014) to reflect only perceived ambiguity, and the set of measures (which we will refer to as the Bewley set) developed by Ghirardato et al. (J Econ Theory 118:133–173, 2004), Nehring (Ambiguity in the context of probabilistic beliefs, working paper, 2001, Bernoulli without Bayes: a theory of utility-sophisticated preference, working paper, 2007) and Ghirardato and Siniscalchi (A more robust definition of multiple priors, working paper, 2007, Econometrica 80:2827–2847, 2012). This Bewley set is the main alternative offered in the literature as possibly representing perceived ambiguity. Regarding symmetry assumptions, we show that, under relatively mild conditions, a variety of preference symmetry conditions from the literature [including that in KMS (2014)] are equivalent. In KMS (2014), we showed that, under symmetry, the Bewley set and the set of relevant measures are not always the same. Here, we establish a preference condition, No Half Measures, that is necessary and sufficient for the two to be the same under symmetry. This condition is rather stringent. Only when it is satisfied may the Bewley set be interpreted as reflecting only perceived ambiguity and not also taste aspects such as ambiguity aversion.

AB - Since at least de Finetti (Annales de l’Institut Henri Poincare 7:1–68, 1937), preference symmetry assumptions have played an important role in models of decision making under uncertainty. In the current paper, we explore (1) the relationship between the symmetry assumption of Klibanoff et al. (KMS) (Econometrica 82:1945–1978, 2014) and alternative symmetry assumptions in the literature, and (2) assuming symmetry, the relationship between the set of relevant measures, shown by KMS (2014) to reflect only perceived ambiguity, and the set of measures (which we will refer to as the Bewley set) developed by Ghirardato et al. (J Econ Theory 118:133–173, 2004), Nehring (Ambiguity in the context of probabilistic beliefs, working paper, 2001, Bernoulli without Bayes: a theory of utility-sophisticated preference, working paper, 2007) and Ghirardato and Siniscalchi (A more robust definition of multiple priors, working paper, 2007, Econometrica 80:2827–2847, 2012). This Bewley set is the main alternative offered in the literature as possibly representing perceived ambiguity. Regarding symmetry assumptions, we show that, under relatively mild conditions, a variety of preference symmetry conditions from the literature [including that in KMS (2014)] are equivalent. In KMS (2014), we showed that, under symmetry, the Bewley set and the set of relevant measures are not always the same. Here, we establish a preference condition, No Half Measures, that is necessary and sufficient for the two to be the same under symmetry. This condition is rather stringent. Only when it is satisfied may the Bewley set be interpreted as reflecting only perceived ambiguity and not also taste aspects such as ambiguity aversion.

KW - Ambiguity

KW - Ambiguity aversion

KW - Beliefs

KW - Ellsberg

KW - Model uncertainty

KW - Symmetry

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U2 - 10.1007/s11579-017-0191-2

DO - 10.1007/s11579-017-0191-2

M3 - Article

AN - SCOPUS:85021783075

SN - 1862-9679

VL - 12

SP - 33

EP - 54

JO - Mathematics and Financial Economics

JF - Mathematics and Financial Economics

IS - 1

ER -