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A Variational Model of Preference under Uncertainty

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  • Fishburn, Peter C

Abstract

A familiar example devised by Daniel Ellsberg to highlight the effects of event ambiguity on preferences is transformed to separate aleatory uncertainty (chance) from epistemic uncertainty. The transformation leads to a lottery acts model whose states involve epistemic uncertainty; aleatory uncertainty enters into the state-dependent lotteries. The model proposes von Neumann-Morgenstern utility for lotteries, additive subjective probability for states, and the use of across-states standard deviation weighted by a coefficient of aversion to variability to account for departures from Anscombe-Aumann subjective expected utility. Properties of the model are investigated and a partial axiomatization is provided. Copyright 1994 by Kluwer Academic Publishers

Suggested Citation

  • Fishburn, Peter C, 1994. "A Variational Model of Preference under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 8(2), pages 127-152, March.
    • Handle: RePEc:kap:jrisku:v:8:y:1994:i:2:p:127-52
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    Cited by:

    1. Amin Zargar & Rehan Sadiq & Faisal Khan, 2014. "Uncertainty-Driven Characterization of Climate Change Effects on Drought Frequency Using Enhanced SPI," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 28(1), pages 15-40, January.
    2. Schneider, Mark A. & Nunez, Manuel A., 2015. "A simple mean–dispersion model of ambiguity attitudes," Journal of Mathematical Economics, Elsevier, vol. 58(C), pages 25-31.

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