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Comparative ambiguity aversion and downside ambiguity aversion

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  • Huang, Yi-Chieh
  • Tzeng, Larry Y.
  • Zhao, Lin

Abstract

This paper first defines an increase in ambiguity and an increase in downside ambiguity. We then provide comparative criteria for ambiguity aversion and downside ambiguity aversion. Different from the finding that the comparative criterion for risk aversion is variant with the measure of the premium to reduce risks, we show that the criteria remain the same, whether the premiums to reduce ambiguity and downside ambiguity are measured by utility or money. Under the criteria, a more ambiguity-averse (downside-ambiguity-averse) individual is shown to spend more effort in reducing ambiguity (downside ambiguity) than a less ambiguity-averse (downside-ambiguity-averse) individual.

Suggested Citation

  • Huang, Yi-Chieh & Tzeng, Larry Y. & Zhao, Lin, 2015. "Comparative ambiguity aversion and downside ambiguity aversion," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 257-269.
    • Handle: RePEc:eee:insuma:v:62:y:2015:i:c:p:257-269
    DOI: 10.1016/j.insmatheco.2015.04.002
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    More about this item

    Keywords

    Ambiguity; Downside ambiguity; Comparative ambiguity aversion; Comparative downside ambiguity aversion; Effort;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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