The Ellsberg Paradox and Risk Aversion: An Anticipated Utility Approach

Segal, Uzi

doi:10.2307/2526866

Cited by 371 publications

(288 citation statements)

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“…According to Lemma 4.1 in Segal (1987), subproportionality holds iff ε(p) is increasing. As s t+1 < s t < s, ε(s t+1 ) < ε(s t ) < ε(s) and, hence, the sum of the elasticities in the final line of the derivation is negative.…”

Section: A4 Uncertainty and Hyperbolicitymentioning

confidence: 99%

Uncertainty Breeds Decreasing Impatience: The Role of Risk Preferences in Time Discounting

2009

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Future events are uncertain by their very nature. Therefore, people's risk preferences are likely to play a role in the valuation of allegedly guaranteed future outcomes. We show that future uncertainty conjointly with people's proneness to nonlinear probability weighting generates a unifying framework for explaining many anomalies in intertemporal choice, such as hyperbolic discounting and subadditivity of discount factors. Moreover, our approach implies that higher uncertainty of future prospects increases the hyperbolicity of discount rates, suggesting that institutional deficiencies such as lack of contract enforcement, may be a source of hyperbolic discounting behavior. Based on an experiment with monetary incentives, we show that people's risk taking behavior is indeed a significant determinant of their time discounting behavior: Greater departures from linear probability weighting predict a stronger decline in impatience on the level of individual behavior.

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Section: A4 Uncertainty and Hyperbolicitymentioning

confidence: 99%

Uncertainty Breeds Decreasing Impatience: The Role of Risk Preferences in Time Discounting

2009

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“…9 Readers are referred to Kelsey and Quiggin (1992), Camerer and Weber (1992), Quiggin (1993) and Harless and Camerer (1994) for much broader reviews of the literature and perspectives on the relative utility of different models. 10 The RDEU model has, however, also been applied to conditions of ambiguity by Segal (1987), who uses the RDEU to apply to second-order probability distributions. Similarly, the model is quite similar to the models of Schmeidler (1989) and Gilboa (1987) that axiomatize a model that uses Choquet integration when decision makers are faced with ambiguity.…”

Section: The Rdeu Modelmentioning

confidence: 99%

Why environmental and resource economists should care about non-expected utility models

Shaw

Woodward

2008

Resource and Energy Economics

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Experimental and theoretical analysis has shown that the conventional expected utility (EU) and subjective expected utility (SEU) models, which are linear in probabilities, have serious limitations in certain situations. We argue here that these limitations are often highly relevant to the work that environmental and natural resource economists do. We discuss some of the experimental evidence and alternatives to the SEU. We consider the theory used, the problems studied, and the methods employed by resource economists. Finally, we highlight some recent work that has begun to use some of the alternatives to the EU and SEU frameworks and discuss areas where much future work is needed. #

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“…Within the former class of models, uncertainty is either interpreted as the existence of a unique second-order probability distribution, as in Segal [1987], or as different sets of probability measures as in Ellsberg [1961], Sahlin [1982, 1983], Levi [1974Levi [ , 1986, and Gilboa and Schmeidler [1989]. Additional models which allow for a similar interpretation of uncertainty are the models that use adjusted probabilities such as Einhorn and Hogarth [1985], and Hogarth and Einhorn [1990].…”

Section: Theoretical Background and Hypotheses Testedmentioning

confidence: 99%

The Valuation of Insurance under Uncertainty: Does Information about Probability Matter?

Mauro¹,

Maffioletti²

2001

Geneva Risk Ins Rev

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In a laboratory experiment we test the hypothesis that consumers' valuation of insurance is sensitive to the amount of information available on the probability of a potential loss. In order to test this hypothesis we simulate a market in which we elicit individuals' willingness to pay to insure against a loss characterised either by known or else vague probabilities. We use two distinct treatments by providing subjects with different information over the vague probabilities of loss. In general we find that uncertainty about probabilities has a weak impact on consumers' valuation of insurance. However, additional information about probabilities tends to marginally increase the price individuals are willing to pay to insure themselves. Implications for the insurance market are derived.

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The Ellsberg Paradox and Risk Aversion: An Anticipated Utility Approach

Cited by 371 publications

References 0 publications

Uncertainty Breeds Decreasing Impatience: The Role of Risk Preferences in Time Discounting

Uncertainty Breeds Decreasing Impatience: The Role of Risk Preferences in Time Discounting

Why environmental and resource economists should care about non-expected utility models

The Valuation of Insurance under Uncertainty: Does Information about Probability Matter?

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