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Ambiguity Aversion, Robustness, and the Variational Representation of Preferences
Author(s) -
Maccheroni Fabio,
Marinacci Massimo,
Rustichini Aldo
Publication year - 2006
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.1111/j.1468-0262.2006.00716.x
Subject(s) - ambiguity , ambiguity aversion , mathematical economics , expected utility hypothesis , prior probability , robustness (evolution) , decision maker , subjective expected utility , economics , econometrics , knightian uncertainty , mathematics , computer science , bayesian probability , statistics , management science , biochemistry , chemistry , gene , programming language
We characterize, in the Anscombe–Aumann framework, the preferences for which there are a utility function u on outcomes and an ambiguity index c on the set of probabilities on the states of the world such that, for all acts f and g , . The function u represents the decision maker's risk attitudes, while the index c captures his ambiguity attitudes. These preferences include the multiple priors preferences of Gilboa and Schmeidler and the multiplier preferences of Hansen and Sargent. This provides a rigorous decision‐theoretic foundation for the latter model, which has been widely used in macroeconomics and finance.