Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
957407 | Journal of Economic Theory | 2007 | 30 Pages |
Abstract
The Savagian choice-theoretic construction of subjective probability does not apply to preferences, like those in the Ellsberg Paradox, that reflect a distinction between risk and ambiguity. We formulate two representation results-one for expected utility, the other for probabilistic sophistication-that derive subjective probabilities but only on a “small” domain of risky events. Risky events can be either specified exogenously or in terms of choice behavior; in the latter case, both the values and the domain of probability are subjective. The analysis identifies a mathematical structure-called a mosaic-that is intuitive for both exogenous and behavioral specifications of risky events. This structure is weaker than an algebra or even a λ-system.
Keywords
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Authors
Igor Kopylov,