Ambiguity and decision modeling: A preference-based approach
In this article, we develop a model that permits a decision maker's preferences to depend on the decision maker's ambiguity about the probability of an event that is relevant for decision-making purposes. We deal with ambiguity through preference modeling, with ambiguity leading to modifications in the utilities of outcomes. The behavior of ambiguity premiums and probability premiums as the payoffs are varied depends on the nature of the modifications in utilities. Particular forms of the model that arise under different sets of assumptions about preferences include additive, bilinear, and ratio forms. We conclude with a brief example and some thoughts about potential generalizations and implications of the model. © 1992 Kluwer Academic Publishers.
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Related Subject Headings
- Economics
- 3802 Econometrics
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
- 1402 Applied Economics
Citation
Published In
DOI
EISSN
ISSN
Publication Date
Volume
Issue
Start / End Page
Related Subject Headings
- Economics
- 3802 Econometrics
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
- 1402 Applied Economics