Symmetry axioms and perceived ambiguity

Peter Klibanoff, Sujoy Mukerji*, Kyoungwon Seo

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

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.

Original languageEnglish (US)
Pages (from-to)33-54
Number of pages22
JournalMathematics and Financial Economics
Volume12
Issue number1
DOIs
StatePublished - Jan 1 2018

Keywords

  • Ambiguity
  • Ambiguity aversion
  • Beliefs
  • Ellsberg
  • Model uncertainty
  • Symmetry

ASJC Scopus subject areas

  • Statistics and Probability
  • Finance
  • Statistics, Probability and Uncertainty

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