Belief hedges: Measuring ambiguity for all events and all models

https://doi.org/10.1016/j.jet.2021.105353Get rights and content
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Abstract

We introduce belief hedges, i.e., sets of events whose uncertain subjective beliefs neutralize each other. Belief hedges allow us to measure ambiguity attitudes without knowing those subjective beliefs. They lead to improved ambiguity indexes that are valid under all popular ambiguity theories. Our indexes can be applied to real-world problems and do not require expected utility for risk or commitments to two-stage optimization, thereby increasing their descriptive power. Belief hedges make ambiguity theories widely applicable.

JEL classification

D81
C91

Keywords

Subjective beliefs
Ambiguity aversion
Ellsberg paradox
Sources of uncertainty

Cited by (0)

A first draft of this paper was entitled: “Balanced Design: The Key to Measuring Ambiguity Attitudes when Beliefs Are Unknown.”