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Belief hedges: Measuring ambiguity for all events and all models

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  • Baillon, Aurélien
  • Bleichrodt, Han
  • Li, Chen
  • Wakker, Peter P.

Abstract

We introduce belief hedges, i.e., sets of events whose uncertain subjective beliefs neutralize each other. Belief hedges allow us to measure ambiguity attitudes without knowing those subjective beliefs. They lead to improved ambiguity indexes that are valid under all popular ambiguity theories. Our indexes can be applied to real-world problems and do not require expected utility for risk or commitments to two-stage optimization, thereby increasing their descriptive power. Belief hedges make ambiguity theories widely applicable.

Suggested Citation

  • Baillon, Aurélien & Bleichrodt, Han & Li, Chen & Wakker, Peter P., 2021. "Belief hedges: Measuring ambiguity for all events and all models," Journal of Economic Theory, Elsevier, vol. 198(C).
    • Handle: RePEc:eee:jetheo:v:198:y:2021:i:c:s0022053121001708
    DOI: 10.1016/j.jet.2021.105353
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    7. Lotito Gianna & Maffioletti Anna & Santoni Michele, 2023. "Testing Source Influence on Ambiguity Reaction: Preference and Insensitivity," Working papers 083, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
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    More about this item

    Keywords

    Subjective beliefs; Ambiguity aversion; Ellsberg paradox; Sources of uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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