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Ambiguity, Data and Preferences for Information - A Case-Based Approach

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  • Ani Guerdjikova
  • Jürgen Eichberger

    (THEMA, Universite de Cergy-Pontoise and THEMA
    University of Heidelberg)

Abstract

In this paper we suggest a behavioral approach to decision making under ambiguity based on available information. A decision situation is characterized by a set of actions, a set of outcomes, and data consisting of action-outcome pairs. Decision-makers express preferences over actions and data sets. We derive a representation of preferences, which separates utility and beliefs. While the utility function is purely subjective, the beliefs of the decision maker combine objective characteristics of the data (number and frequency of observations) with subjective features of the decision maker (similarity of observations and perceived ambiguity). We identify the subjectively perceived degree of ambiguity and separate it into ambiguity due to a limited number of observations and ambiguity due to data heterogeneity. We also determine the decision maker’s attitude towards ambiguity. The special case of no ambiguity represents beliefs as similarity-weighted frequencies and provides a behavioral foundation for Billot, Gilboa, Samet and Schmeidler’s (2005) representation.

Suggested Citation

  • Ani Guerdjikova & Jürgen Eichberger, 2012. "Ambiguity, Data and Preferences for Information - A Case-Based Approach," THEMA Working Papers 2012-45 Classification-Je, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    • Handle: RePEc:ema:worpap:2012-45
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    Cited by:

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    2. Massimo Marinacci, 2015. "Model Uncertainty," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1022-1100, December.
    3. Alon, Shiri & Bavly, Gilad & Gayer, Gabrielle, 2022. "Inductive inference with incompleteness," Games and Economic Behavior, Elsevier, vol. 132(C), pages 576-591.
    4. Lena Dräger & Michael Lamla, 2018. "Is the Anchoring of Consumers' Inflation Expectations Shaped by Inflational Experience?," CESifo Working Paper Series 7042, CESifo.
    5. Adam Dominiak & Ani Guerdjikova, 2021. "Special Issue on Ambiguity and Strategic Interactions in Honor of Jürgen Eichberger," Theory and Decision, Springer, vol. 90(3), pages 301-307, May.
    6. Han Bleichrodt & Martin Filko & Amit Kothiyal & Peter P. Wakker, 2017. "Making Case-Based Decision Theory Directly Observable," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 123-151, February.
    7. Roxane Bricet, 2018. "The price for instrumentally valuable information," THEMA Working Papers 2018-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    8. Eichberger, Jürgen & Guerdjikova, Ani, 2013. "Ambiguity, data and preferences for information – A case-based approach," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1433-1462.

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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