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School of Business | Department of Economics | Economics | 2014
Thesis number: 13665
A critical analysis of two recent ambiguity models
| Author: | Mononen, Lasse |
| Title: | A critical analysis of two recent ambiguity models |
| Year: | 2014 Language: eng |
| Department: | Department of Economics |
| Academic subject: | Economics |
| Index terms: | kansantaloustiede; economics; taloustieteet; economic science; mallit; models; tutkimusmenetelmät; research methods |
| Pages: | 79 |
| Key terms: | ambiguity; Ellsberg paradox; uncertainty averse preferences; expected uncertain utility theory |
| Abstract: |
This thesis studies expected uncertain utility theory (EUU) (Gul & Pesendorfer, 2014)and uncertainty averse preferences (UAP) (Cerreia-Vioglio et al., 2011). First, different historical models of ambiguity are presented and their proofs sketched. Second, EUU and UAP are analyzed in detail and their utility representation theorems are sketched. Third, UAP's insight into the smooth ambiguity model and its extension with Bewley preferences are presented; additionally, by using this extension, the similarity of EUU and UAP is discussed. Fourth, counterintuitive predictions are shown for EUU and the author's solution attempt for these is discussed. Moreover, EUU is shown to break the connectivity principle since SEU is not a special case of EUU. Fifth, Machina's (2009) reflection example for UAP is presented, and the class of preferences that UAP characterizes is shown to be limited. Finally, differences between the Savage and Anscombe-Aumann frameworks are discussed.
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