Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: May, 2022, Volume 90, Issue 3

Dual-self representations of ambiguity preferences

https://doi.org/10.3982/ECTA17502
p. 1029-1061

Madhav Chandrasekher, Mira Frick, Ryota Iijima, Yves Le Yaouanq

We propose a class of multiple‐prior representations of preferences under ambiguity, where the belief the decision‐maker (DM) uses to evaluate an uncertain prospect is the outcome of a game played by two conflicting forces, Pessimism and Optimism. The model does not restrict the sign of the DM's ambiguity attitude, and we show that it provides a unified framework through which to characterize different degrees of ambiguity aversion, and to represent the co‐existence of negative and positive ambiguity attitudes within individuals as documented in experiments. We prove that our baseline representation, dual‐self expected utility (DSEU), yields a novel representation of the class of invariant biseparable preferences (Ghirardato, Maccheroni, and Marinacci (2004)), which drops uncertainty aversion from maxmin expected utility (Gilboa and Schmeidler (1989)), while extensions of DSEU allow for more general departures from independence. We also provide foundations for a generalization of prior‐by‐prior belief updating to our model.


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Supplemental Material

Supplement to "Dual-self representations of ambiguity preferences"

Chandrasekher, Madhav, Mira Frick, Ryota Iijima, and Yves Le Yaouanq

This online appendix contains material not found within the mansucript.

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