Recursive Ambiguity and Machina's Examples

7 Pages Posted: 24 Jan 2015

See all articles by David Dillenberger

David Dillenberger

University of Pennsylvania - Department of Economics

Uzi Segal

Boston College - Department of Economics

Date Written: February 2015

Abstract

Machina (American Economic Review 99 (2009), 385–392; American Economic Review 104 (2014), 3814–40) lists a number of situations where Choquet expected utility, as well as other known models of ambiguity aversion, cannot 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 nonexpected utility model of Segal (International Economic Review 28 (1987), 175–202) is rich enough to accommodate all these situations and, moreover, that this can be done using the same functional form for all situations.

Suggested Citation

Dillenberger, David and Segal, Uzi, Recursive Ambiguity and Machina's Examples (February 2015). International Economic Review, Vol. 56, Issue 1, pp. 55-61, 2015. Available at SSRN: https://ssrn.com/abstract=2554762 or http://dx.doi.org/10.1111/iere.12094

David Dillenberger (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1503 (Phone)

Uzi Segal

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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