The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Uncertainty

  • Peter P. Wakker
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_1324

Abstract

This article deals with individual decision making under uncertainty (unknown probabilities). Risk (known probabilities) is not treated as a separate case, but as a sub-case of uncertainty. Many results from risk naturally extend to uncertainty. The Allais paradox, commonly applied to risk, also reveals empirical deficiencies of expected utility for uncertainty. The Ellsberg paradox reveals deviations from expected utility in a relative, not an absolute, sense, giving within-person comparisons: for some events (ambiguous or otherwise) subjects deviate more from expected utility than for other events. Besides aversion, many other attitudes towards ambiguity are empirically relevant.

Keywords

Additive probabilities Allais paradox Allais, M. Ambiguity and ambiguity aversion Ambiguity attitudes Bayesian statistics Bernoulli, D. Betweenness models Concave utility Convex analysis Convex probability weighting Convex utility Cumulative prospect theory De Finetti, B. Decision theory Decision under risk Disappointment aversion theory Ellsberg paradox Existence of equilibria Expected utility Gambling Greenspan, A. Insurance Kahneman, D. Keynes, J. M. Knight, F. Known probabilities Likelihood Loss aversion Moral hazard Multiple priors model Neuroeconomics Non-expected utility Objective probability Pessimism Probabilistic risk attitudes Probabilistic sophistication Probability Prospect theory Ramsay, F. Rank dependence Rank-dependent models Rank-dependent utility Reference dependence Revealed preference Risk Risk aversion Savage, L. Sensitivity Separability Source preference State spaces Stochastic dominance Subjective probability Sure-thing principle Tversky, A. Uncertainty Unknown probabilities Wald, A. Weighted utility Within-person comparison 

JEL Classifications

D8 
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Notes

Han Bleichrodt, Chew Soo Hong, Edi Karni, Jacob Sagi and Stefan Trautmann made useful comments.

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Peter P. Wakker
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