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Handbook of the Economics of Risk and Uncertainty
book

Handbook of the Economics of Risk and Uncertainty

by Mark Machina, W. Kip Viscusi
November 2013
Beginner content levelBeginner
896 pages
35h 10m
English
North Holland
Content preview from Handbook of the Economics of Risk and Uncertainty
Mark J. Machina and Marciano Siniscalchi
760
To illustrate how this model can accommodate Ellsberg preferences in the Three-
Color Urn, keep the normalization U($100) = 1 and U($0) = 0, and suppose that the
decision-maker assigns probability 1/2 to each of the distributions
Then bet a
1
on red induces the same lottery P = {$100;1/3;$0,2/3} under
either measure, so we can identify it with the degenerate two-stage lottery {P,1}
to obtain W(α
1
) = V(P) = δ(1/3). A similar argument establishes W(a
4
) = V(P)
= δ(2/3).
Consider now the bet a
2
on black. Under distribution μ
1
it yields the lottery
P
1
= {$100,2/3,$0,1/3}, while under μ
2
it yields P
2
= {$100,0;$0,1}. ...
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Publisher Resources

ISBN: 9780444536853