Constrained optimal discounting

First author draf

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

The final step in the proof of Proposition 1 (p.311) of Mukerji and Tallon (2003) may not hold in generalbecause $\varepsilon>0$ in the proof cannot be chosen independently of $w,z$. 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

Costly Subjective Learning

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