Combining Savage and Laplace

A new approach to ambiguity

Bibliographic Data

ID21405035
AuthorsRalf Diedrich (0000-0001-7003-2700, Leipzig University of Applied Sciences, corresponding author)
Year2024
Volume97
Issue3
Pages423-453
Publication date2024-11-01
Open AccessYes
TypeARTICLE
VenueTheory and Decision (JOURNAL)
Journal identifiersISSN: 0040-5833 • E-ISSN: 1573-7187
PublisherSpringer Science and Business Media LLC (PUBLISHER)
DOI10.1007/s11238-024-09980-0
OpenAlexW4395672293
LanguageEN
References cited27

This paper presents a new representation of preference orderings for the study of ambiguity-related decision-making. The central feature is a preference-based decomposition of subjective probabilities that provides information about inherent ambiguity. The probability decomposition is combined with a utility function reflecting the decision-maker’s attitude toward ambiguity. The proposed theory generalizes Savage’s SEU and allows for a straightforward measurement of ambiguity and ambiguity aversion while keeping concepts for measuring risk and risk attitudes unaffected. For the measurement of ambiguity, concepts of probability theory can be used since decision acts can be interpreted as two-dimensional probability distributions. The proposed measure of ambiguity aversion exploits the properties of the utility function in the same way as the Arrow/Pratt measure of risk aversion

Ambiguity · Ambiguity aversion · Data mining · Decision theory · Econometrics · Expected utility hypothesis · Function (biology) · Mathematical economics · Measure (data warehouse) · Preference · Probability distribution · Probability measure · Risk aversion (psychology) · Statistics · Subjective expected utility · Computer Science · Decision-Making and Behavioral Economics · Forecasting Techniques and Applications · Mathematics · Multi-Criteria Decision Making

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