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Who is ambiguity neutral?

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  • Pavlo Blavatskyy

    (Montpellier Business School)

Abstract

A subjective expected utility maximizer is usually considered to be neutral to ambiguity (Knightian uncertainty). Arguably, a decision-maker who behaves as if he or she forms probabilistic beliefs over uncertain events (but does not necessarily maximize expected utility) is also ambiguity neutral. This note proposes a simple definition of (absolute) ambiguity neutrality in choice under Knightian uncertainty: if a decision-maker bets more money on event A rather than on event B then he or she should also consistently bet less money on event B (rather than on event A). This definition is consistent with the classic Ellsberg two- and three-color paradoxes.

Suggested Citation

  • Pavlo Blavatskyy, 2024. "Who is ambiguity neutral?," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 49(2), pages 181-193, September.
    • Handle: RePEc:pal:genrir:v:49:y:2024:i:2:d:10.1057_s10713-023-00086-1
    DOI: 10.1057/s10713-023-00086-1
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    References listed on IDEAS

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