Preferences under Ambiguity Without Event-Separability

Abstract

We propose and axiomatically characterize a representation of ambiguity sensitive preferences. The distinguishing feature of our axiomatization is that we do not require preferences to be event-wise separable over any domain of acts. Even without any such separability restrictions, we are able to uniquely elicit the decision maker's subjective probabilities. The novel axiom that allows us to do so expresses the idea that at least in the domain of a certain class of acts the decision maker exhibits a consistent tradeoff between risk and ambiguity concerns. Under our representation of her preferences, any act is assessed by its subjective expected utility and a residual that captures her assessment of the act's exposure to ambiguity.

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