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Ellsberg's Paradox and the value of chances

Bradley, Richard (2016) Ellsberg's Paradox and the value of chances. Economics and Philosophy, 32 (2). pp. 231-248. ISSN 0266-2671

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Identification Number: 10.1017/S0266267115000358

Abstract

What value should we put on our chances of obtaining a good? This paper argues that, contrary to the widely accepted theory of von Neumann and Morgenstern, the value of a chance of some good G may be a nonlinear function of the value of G. In particular, chances may have diminishing marginal utility, a property that is termed chance uncertainty aversion. The hypothesis that agents are averse to uncertainy about chances explains a pattern of preferences often observed in the Ellsberg paradox. While these preferences have typically been taken to refute Bayesian decision theory, it is shown that chance risk aversion is perfectly compatible with it.

Item Type: Article
Official URL: http://journals.cambridge.org/action/displayJourna...
Additional Information: © 2015 Cambridge University Press
Divisions: Philosophy, Logic and Scientific Method
Subjects: B Philosophy. Psychology. Religion > B Philosophy (General)
Sets: Departments > Philosophy, Logic and Scientific Method
Date Deposited: 06 Jan 2016 16:58
Last Modified: 20 Oct 2019 02:20
Projects: AH/J006033/1
Funders: Arts and Humanities Research Council
URI: http://eprints.lse.ac.uk/id/eprint/64847

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