Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/150185 
Authors: 
Year of Publication: 
2013
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 8 [Issue:] 1 [Publisher:] The Econometric Society [Place:] New Haven, CT [Year:] 2013 [Pages:] 59-93
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
Preferences are defined over payoffs that are contingent on a finite number of states representing a horse race (Knightian uncertainty) and a roulette (objective risk). The class of scale-invariant (SI) ambiguity-averse preferences, in a broad sense, is uniquely characterized by a multiple-prior utility representation. Adding a weak certainty independence axiom is shown to imply either unit CRRA toward roulette risk or SI maxmin expected utility. Removing the weak independence axiom but adding a separability assumption on preferences over pure horse-race bets leads to source-dependent constant-relative-risk-aversion expected utility with a higher CRRA assigned to horse-race uncertainty than to roulette risk. The multiple-prior representation in this case is shown to generalize entropic variational preferences. An appendix characterizes the functional forms associated with SI ambiguity-averse preferences in terms of suitable weak independence axioms in place of scale invariance.
Subjects: 
Uncertainty aversion
ambiguity aversion
source-dependent risk aversion
scale invariance
homotheticity
JEL: 
D81
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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