Review of Economic Studies Vol. 72 No. 2 2005
A Bayesian Approach to Uncertainty Aversion
Abstract
The Ellsberg paradox demonstrates that people's beliefs over uncertain events might not be representable by subjective probability. We show that if a risk averse decision maker, who has a well defined Bayesian prior, perceives an Ellsberg type decision problem as possibly composed of a bundle of several positively correlated problems, she will be uncertainty averse. We generalize this argument and derive sufficient conditions for uncertainty aversion.
- DOI
- 10.1111/j.1467-937x.2005.00339.x
- Volume
- 72
- Issue
- 2
- Pages
- 449-466
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref