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- Title
Randomization and Ambiguity Aversion.
- Authors
Ke, Shaowei; Zhang, Qi
- Abstract
We propose a model of preferences in which the effect of randomization on ambiguity depends on how the unknown probability law is determined. We adopt the framework of Anscombe and Aumann (1963) and relax the axioms. In the resulting representation of the individual's preference, the individual has a collection of sets of priors M. She believes that before she moves, nature has chosen an unknown scenario (a set of priors) from M, and from that scenario, nature will choose a prior after she moves. The representation illustrates how randomization may partially eliminate the effect of ambiguity.
- Subjects
AMBIGUITY; INDIVIDUALS' preferences; AVERSION
- Publication
Econometrica, 2020, Vol 88, Issue 3, p1159
- ISSN
0012-9682
- Publication type
Article
- DOI
10.3982/ECTA15182