Subjective probabilities on “small” domains
نویسنده
چکیده
The Savagian choice-theoretic construction of subjective probability does not apply to preferences, like those in the Ellsberg Paradox, that reflect a distinction between risk and ambiguity.We formulate two representation results—one for expected utility, the other for probabilistic sophistication—that derive subjective probabilities but only on a “small” domain of risky events. Risky events can be either specified exogenously or in terms of choice behavior; in the latter case, both the values and the domain of probability are subjective. The analysis identifies a mathematical structure—called a mosaic—that is intuitive for both exogenous and behavioral specifications of risky events. This structure is weaker than an algebra or even a -system. © 2005 Elsevier Inc. All rights reserved. JEL classification: D80; D81
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Subjective probabilities on "small" domains
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