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Ambiguity Without a State Space

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  • David S. Ahn

Abstract

Many decisions involve both imprecise probabilities and intractable states of the world. Objective expected utility assumes unambiguous probabilities; subjective expected utility assumes a completely specified state space. This paper analyses a third domain of preference: sets of consequential lotteries. Using this domain, we develop a theory of objective ambiguity without explicit reference to any state space. We characterize a representation that integrates a non-linear transformation of first-order expected utility with respect to a second-order measure. The concavity of the transformation and the weighting of the measure capture ambiguity aversion. We propose a definition for comparative ambiguity aversion. Copyright 2008, Wiley-Blackwell.

Suggested Citation

  • David S. Ahn, 2008. "Ambiguity Without a State Space," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 3-28.
    • Handle: RePEc:oup:restud:v:75:y:2008:i:1:p:3-28
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2007.00473.x
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