Ignorance and Competence in Choices Under Uncertainty
Código: WPE – 323
José Heleno Faro
Abstract: We propose a model of decision making that captures reluctance to bet when the decision maker (DM) perceives that she lacks adequate in- formation or expertise about the underlying contingencies. On the other hand, the same DM can prefer to bet in situations where she feel spe- cially knowledgeable or competent even the underlying contingencies have vague likelihood. This separation is motivated by the Heath and Tverskys competence hypothesis as well as by the Fox and Tverskys comparative ignorance e¤ect. Formally, we characterize preference relations % over Anscombe-Aumann acts represented. Where u is an a¢ ne utility index on consequences, C is a nonempty, convex and (weak ) compact subset of probabilities measures, and A is a refer- ential chance event. In this model there is a clear separation of ambiguity attitudes. The case E A captures possible familiar target events while the case E Ac might refers to the case of relative ignorance concerning related contingencies. This model captures a special case of event depen- dence of ambiguity attitudes in which the well known maxmin model is a special case. We also characterizes the case where we have a Choquet Expected Utility representation. Journal of Economic Literature Classi- cation Number : D81.