Document Type
Discussion Paper
Publication Date
6-1-2019
CFDP Number
2180
CFDP Pages
39
Journal of Economic Literature (JEL) Code(s)
D81
Abstract
We propose a multiple-prior model of preferences under ambiguity that provides a unified lens through which to understand different formalizations of ambiguity aversion, as well as context-dependent negative and positive ambiguity attitudes documented in experiments. This model, Boolean expected utility (BEU), represents the belief the decision-maker uses to evaluate any uncertain prospect as the outcome of a game between two conflicting forces, Pessimism and Optimism. We prove, first, that BEU provides a novel representation of the class of invariant biseparable preferences (Ghirardato, Maccheroni, and Marinacci, 2004). Second, BEU accommodates rich patterns of ambiguity attitudes, which we characterize in terms of the relative power allocated to each force in the game.
Recommended Citation
Frick, Mira; Iijima, Ryota; and Yaouanq, Yves Le, "Boolean Expected Utility" (2019). Cowles Foundation Discussion Papers. 77.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/77