Title

Affective Decision Making and the Ellsberg Paradox

Document Type

Discussion Paper

Publication Date

6-1-2008

CFDP Number

1667R

CFDP Revision Date

2008-08-01

CFDP Pages

19

Abstract

Affective decision-making is a strategic model of choice under risk and uncertainty where we posit two cognitive processes — the “rational” and the “emotional” process. Observed choice is the result of equilibrium in this intrapersonal game. As an example, we present applications of affective decision-making in insurance markets, where the risk perceptions of consumers are endogenous. We derive the axiomatic foundation of affective decision making, and show that affective decision making is a model of ambiguity-seeking behavior consistent with the Ellsberg paradox.

This document is currently not available here.

Share

COinS