Recursive Ambiguity and Machina’s Examples

Abstract:     
Machina (2009, 2012) lists a number of situations where standard models of ambiguity aversion are unable to capture plausible features of ambiguity attitudes. Most of these problems arise in choice over prospects involving three or more outcomes. We show that the recursive non-expected utility model of Segal (1987) is rich enough to accommodate all these situations.

Number of Pages in PDF File: 13

Keywords: Ambiguity, Ellsberg paradox, Choquet expected utility, recursive non-expected utility

JEL Classification: D81

working papers series