• Mathematics
  • Published 2008

Uncertainty and Compound Lotteries: Calibration

  title={Uncertainty and Compound Lotteries: Calibration},
  author={Yoram Halevy and Emre Ozdenoren},
The Ellsberg experiments provide an intuitive illustration that the Savage approach, which reduces subjective uncertainty to risk, is not rich enough to capture many decision makers' preferences. Recent experimental evidence suggests that decision makers reduce uncertainty to compound risk. This work presents a theoretical model of decision making in which preferences are defined on both Savage subjective acts and compound objective lotteries. Preferences are two-stage probabilistically… CONTINUE READING