Seminar

Subjective Risk, Confidence, and Ambiguity

Christian Traeger (Berkeley)

May 31, 2010, 11:00–12:30

Toulouse

Room MF 323

Environment Economics Seminar

Abstract

The paper extends a dynamic version of the classical von Neumann-Morgenstern setting to incorporate a degree of confidence in or subjectivity of probabilistic beliefs. It provides a simple axiomatic characterization of a new preference representation that addresses ambiguity from a simple perspective, employing only basic tools from risk analysis. Conceptually, the paper renders the concept of smooth ambiguity aversion more precise and extends it to a more general notion of aversion to the subjectivity of belief. The representation maintains the normatively desirable axioms of the standard setting including the von Neumann-Morgenstern axioms and time consistency.