Differentiating ambiguity and ambiguity attitude

The objective of this paper is to show how ambiguity, and a decision maker (DM)’s response to it, can be modelled formally in the context of a general decision model. We introduce a relation derived from the DM’s preferences, called ‘‘unambiguous preference’’, and show that it can be represented by a set of probabilities. We provide such set with a simple differential characterization, and argue that it is a behavioral representation of the ‘‘ambiguity’’ that the DM may perceive. Given such revealed ambiguity, we provide a representation of ambiguity attitudes. We also characterize axiomatically a special case of our decision model, the ‘‘a-maxmin’’ expected utility model. r 2003 Elsevier Inc. All rights reserved. JEL classification: D80; D81