The ambiguity aversion literature: A critical assessment

Nabil I. Al-Najjar, Jonathan Weinstein

Research output: Contribution to journalArticlepeer-review

98 Scopus citations

Abstract

We provide a critical assessment of the ambiguity aversion literature, which we characterize in terms of the view that Ellsberg choices are rational responses to ambiguity, to be explained by relaxing Savage's Sure-Thing principle and adding an ambiguity-aversion postulate. First, admitting Ellsberg choices as rational leads to behaviour, such as sensitivity to irrelevant sunk cost, or aversion to information, which most economists would consider absurd or irrational. Second, we argue that the mathematical objects referred to as beliefs in the ambiguity aversion literature have little to do with how an economist or game theorist understands and uses the concept. This is because of the lack of a useful notion of updating. Third, the anomaly of the Ellsberg choices can be explained simply and without tampering with the foundations of choice theory. These choices can arise when decision makers form heuristics that serve them well in real-life situations where odds are manipulable, and misapply them to experimental settings.

Original languageEnglish (US)
Pages (from-to)249-284
Number of pages36
JournalEconomics and Philosophy
Volume25
Issue number3
DOIs
StatePublished - Nov 2009

ASJC Scopus subject areas

  • Philosophy
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'The ambiguity aversion literature: A critical assessment'. Together they form a unique fingerprint.

Cite this