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Evaluating ambiguous random variables from Choquet to maxmin expected utility

Author

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  • Gul, Faruk
  • Pesendorfer, Wolfgang

Abstract

We introduce a new theory of belief revision under ambiguity. It is recursive (random variables are evaluated by backward induction) and consequentialist (the conditional expectation of any random variable depends only on the values the random variable attains on the conditioning event). Agents experience no change in preferences but are sensitive to the timing of resolution of uncertainty. We provide three main theorems: the first characterizes our rule and relates it to standard Bayesian updating; the others show that the dynamic behavior of an agent who adopts our rule is maxmin expected utility with an arbitrary set of priors.

Suggested Citation

  • Gul, Faruk & Pesendorfer, Wolfgang, 2021. "Evaluating ambiguous random variables from Choquet to maxmin expected utility," Journal of Economic Theory, Elsevier, vol. 192(C).
    • Handle: RePEc:eee:jetheo:v:192:y:2021:i:c:s0022053120301228
    DOI: 10.1016/j.jet.2020.105129
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    Citations

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    Cited by:

    1. Yoram Halevy & Emre Ozdenoren, 2022. "Uncertainty and compound lotteries: calibration," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(2), pages 373-395, September.
    2. Hill, Brian, 2022. "Updating confidence in beliefs," Journal of Economic Theory, Elsevier, vol. 199(C).
    3. Cheng, Xiaoyu, 2022. "Relative Maximum Likelihood updating of ambiguous beliefs," Journal of Mathematical Economics, Elsevier, vol. 99(C).
    4. Kops, Christopher & Pasichnichenko, Illia, 2023. "Testing negative value of information and ambiguity aversion," Journal of Economic Theory, Elsevier, vol. 213(C).
    5. Lorenzo Bastianello & José Heleno Faro & Ana Santos, 2022. "Dynamically consistent objective and subjective rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(2), pages 477-504, September.
    6. Shishkin, Denis & Ortoleva, Pietro, 2023. "Ambiguous information and dilation: An experiment," Journal of Economic Theory, Elsevier, vol. 208(C).
    7. Yi-Hsuan Lin & Fernando Payró Chew, 2024. "Updating Under Imprecise Information," Working Papers 1424, Barcelona School of Economics.

    More about this item

    Keywords

    Ambiguity; Updating; Resolution of uncertainty;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General

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