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Mean-dispersion preferences with a specific dispersion function

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  • Nunez, Manuel
  • Schneider, Mark

Abstract

A popular approach to modeling ambiguity aversion is to decompose preferences into the subjective expected utility of an act and an ambiguity index, or an adjustment factor, or a dispersion function. However, in these approaches the dispersion function (or ambiguity index, or adjustment factor) has very little structure imposed on it, leaving the selection of a specific dispersion function in applications to be rather arbitrary. In this paper, working in the Anscombe–Aumann (1963) framework, we provide a simpler axiomatic characterization of mean-dispersion preferences which uniquely identifies the dispersion function from the infinite class of possible alternatives. We also obtain existence of unique subjective probabilities.

Suggested Citation

  • Nunez, Manuel & Schneider, Mark, 2019. "Mean-dispersion preferences with a specific dispersion function," Journal of Mathematical Economics, Elsevier, vol. 84(C), pages 195-206.
    • Handle: RePEc:eee:mateco:v:84:y:2019:i:c:p:195-206
    DOI: 10.1016/j.jmateco.2019.08.004
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    References listed on IDEAS

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