11 research outputs found

    Comment on Ellsberg's two-color experiment, portfolio inertia and ambiguity

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    The final step in the proof of Proposition 1 (p.311) of Mukerji and Tallon (2003) may not hold in generalbecause ε>0\varepsilon>0 in the proof cannot be chosen independently of w,zw,z. We point out by a counterexample that the axioms they impose are too weak for Proposition 1. We introduce a modified set of axioms and re-establish the propositionambiguity;bid ask spread;Ellsberg paradox

    Lexicographic Expected Utility with a Subjective State Space

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    This paper provides a model that allows for a criterion of admissibility basedon a subjective state space. For this purpose, we build a non-Archimedeanmodel of preference with subjective states, generalizing Blume, Brandenburger,and Dekel [2], who present a non-Archimedean model with exogenous states;and Dekel, Lipman, and Rustichini [4], who present an Archimedean modelwith an endogenous state space. We interpret the representation as modelingan agent who has several "hypotheses" about her state space, and who viewssome as "infinitely less relevant" than others

    Costly Subjective Learning

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    Information acquisition is an important aspect of decision making. Acquiring information is costly, but the cost of information acquisition is not typically observable and hence it is not obvious how it can be measured. Using preference over menus, de Oliveira, Denti, Mihm, and Ozbek [15] provide an axiomatic foundation for the additive costs model of information acquisition. If obtaining signals from experiments is time-consuming, such as in the case of a long-run investment decision, however, costs may be measured as a discount factor or waiting time for acquiring information. We propose a general class of representations which allows for non-additive costs for information acquisition and provide its axiomatic foundation. Furthermore, the discounting costs model is characterized as a special case

    Dynamically Consistent Menu Preferences

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    We provide a unified analysis of dynamically consistent menu preferences that may exhibit preference for flexibility, preference for commitment, or both. Our work generalizes prior results, which investigated this problem for an agent who always exhibits preference for flexibility. By using two types of consistency conditions, we characterize an agent with a subjective state space who reacts to information about her subjective states in a dynamically consistent way. We apply our reuslts to the multiple temptations and the anticipating regret models

    Lexicographic Expected Utility with a Subjective State Space

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    Three essays on decision theory

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    Thesis (Ph. D.)--University of Rochester. Dept. of Economics, 2008.The standard Savage approach models uncertainty using a primitive state space. This approach is problematic because it presumes that the modeler can observe what kind of uncertainty an agent perceives in her mind: the state space should be derived rather than assumed as a primitive. Kreps (1979, 1992), Nehring (1999), and Dekel, Lipman and Rustichini (2001) (henceforth DLR) show how a subjective state space may be derived from preference defined on a suitable domain, and therefore from in principle observable behavior. I extend DLR in two directions. Chapter 1 provides a lexicographic expected utility model with endogenous states. Therefore, it generalizes both Blume, Brandenberger, and Dekel (1991), who present a lexicographic model with exogenous states, and also DLR, who present an expected utility model with endogenous states. I interpret the representation as modeling an agent who has several "hypotheses" about her state space, and who views some as "infinitely less relevant" than others. In Chapter 2, I formulate an infinite horizon extension of DLR. An axiomatic foundation is provided for the random discounting model, where an agent acts as if she believes that her discount factors change randomly over time. I demonstrate that there exists behavior which can be interpreted as reflecting uncertainty about future discount factors alone. This subjective uncertainty is uniquely pinned down by behavior. Another critique of Savage's subjective expected utility theory is due to Ellsberg (1961). In the Ellsberg Paradox, behavior interpreted as aversion to ambiguity is inconsistent with Savage's theory. Chapter 3 examines the value of information when preference conforms to multiple priors utility model (Gilboa and Schmeidler (1989)), and a signal is ambiguous (Epstein and Schneider (2007)). In a Bayesian model, it is well known that the value of information may not be concave as a function of the amount of information, which can lead to nonexistence of equilibria and other modeling difficulties. I show that introduction of ambiguity into a signal doesn't necessarily cause nonconcavity of the value of information. I identify what type of information quality choice leads to the value of information being nonconcave

    Comment on "Ellsberg's two-color experiment, portfolio inertia and ambiguity".

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    In the setting of Ellsberg's two-color experiment, Mukerji and Tallon (2003) claim, without relying on particular representations, that ambiguity-averse behavior implies subjective portfolio inertia. In this note, we point out using a counterexample that their axioms are not enough to establish the result. We fill in the gap in their argument using additional axioms and argue that these axioms are of their own interest in that they behaviorally separate two prominent models of ambiguity: the maximin expected utility and smooth ambiguity models
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