|
EconStor >
Northwestern University >
Kellogg School of Management - Center for Mathematical Studies in Economics and Management Science, Northwestern University >
Discussion Papers, Kellogg School of Management, Northwestern University >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/10419/59683
|
| | |
| Title: | | Preference for randomization: Ambiguity aversion and inequality aversion  |
| Authors: | | Saito, Kota |
| Issue Date: | | 2010 |
| Series/Report no.: | | Discussion Paper, Center for Mathematical Studies in Economics and Management Science 1489 |
| Abstract: | | In Anscombe and Aumann's (1963) domain, there are two types of mixtures. One is an ex-ante mixture, or a lottery on acts. The other is an ex-post mixture, or a state-wise mixture of acts. These two mixtures have been assumed to be indifferent under the Reversal of Order axiom. However, we argue that the difference between these two mixtures is crucial in some important contexts. Under ambiguity aversion, an ex-ante mixture could provide only ex-ante hedging but not ex-post hedging. Under inequality aversion, an ex-ante mixture could provide only ex-ante equality but not ex-post equality. We provide a unified framework that treats a preference for exante mixtures separately from a preference for ex-post mixtures. In particular, two representations are characterized for each context. One representation for ambiguity aversion is an extension of Gilboa and Schmeidler's (1989) Maxmin preferences. The other representation for inequality aversion is an extension of Fehr and Schmidt's (1999) Piecewise preferences. In both representations, a single parameter characterizes a preference for ex-ante mixtures. For both representations, instead of the Reversal of Order axiom, we propose a weaker axiom, the Indifference axiom, which is a criterion, suggested in Raiffa's (1961) critique, for evaluating lotteries on acts. These models are consistent with much recent experimental evidence in each context. |
| Subjects: | | Ambiguity randomization Ellsberg paradox other-regarding preferences inequality maxmin utility |
| JEL: | | D81 D03 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Discussion Papers, Kellogg School of Management, Northwestern University
|
| Files in This Item:
| |
|
| No. of Downloads:
| |
| last Month |
last 3 Month |
total |
|
|
|
|
|
| |
| | |
Download bibliographical data as:
BibTeX
|
| |
Share on:http://hdl.handle.net/10419/59683
|
Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.
|