Recursive Ambiguity and Machina’s Examples
13 Pages Posted: 21 May 2012
Date Written: May 20, 2012
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.
Keywords: Ambiguity, Ellsberg paradox, Choquet expected utility, recursive non-expected utility
JEL Classification: D81
Suggested Citation: Suggested Citation