Ambiguity Models and the Machina Paradoxes-Reference-Cited by-同舟云学术

Ambiguity Models and the Machina Paradoxes

Published:2011-06-01 Issue:4 Volume:101 Page:1547-1560
ISSN:0002-8282
Container-title:American Economic Review
language:en
Short-container-title:American Economic Review

Author:

Baillon AurÉlien¹,L'Haridon Olivier²,Placido Laetitia³

Affiliation:

1. Erasmus School of Economics, Erasmus University Rotterdam, PO Box 1738, 3000 DR Rotterdam, The Netherlands.

2. Greg-HEC and IUFM-University Paris Sorbonne, 10 rue Molitor, 75016 Paris, France.

3. Greg-HEC and CNRS, HEC Paris School of Management, 1 rue de la Liberation, 78501 Jouy-en-Josas, France.

Abstract

Machina (2009) introduced two examples that falsify Choquet expected utility, presently one of the most popular models of ambiguity. This article shows that Machina's examples falsify not only the model mentioned, but also four other popular models for ambiguity of the literature, namely maxmin expected utility, variational preferences, α-maxmin, and the smooth model of ambiguity aversion. Thus, Machina's examples pose a challenge to most of the present field of ambiguity. Finally, the paper discusses how an alternative representation of ambiguity-averse preferences works to accommodate the Machina paradoxes and what drives the results. (JEL D81)

Publisher

American Economic Association

Subject

Economics and Econometrics

Link

https://pubs.aeaweb.org/doi/pdf/10.1257/aer.101.4.1547

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