Economics Seminar（2019-03） 

Topic: Belief hedges: applying ambiguity measurements to all events and all ambiguity models

Speaker: Chen Li,Erasmus University Rotterdam (the Netherlands)

Time: Tuesday, 5^thMarch, 13:30-15:00

Location: Room 217, Guanghua Building 2

Abstract:

When measuring ambiguity attitudes one should control for subjective beliefs, but those are usually not directly observable. Hence, measurements focused on artificial events (secretized urns or researcher-specified probability intervals), where beliefs could be inferred from symmetry conditions. Such symmetries are rarely available for application-relevant events. This paper shows that ambiguity attitudes still can be identified by using belief hedges, i.e., collections of events that protect against unknown beliefs the same way as financial hedges protect against unknown payoffs. Using belief hedges, we can define model-free indexes of ambiguity attitudes, which can be used under all popular ambiguity models today. We also ensure that the indexes are directly observable from revealed preferences. The indexes agree with existing indexes whereever those are defined, showing that they properly capture the underlying ambiguity concepts. We axiomatize our indexes and discuss their limitations.

Introduction:

Dr. Chen Li is an assistant professor in behavioral economics at Erasmus University Rotterdam (the Netherlands). Her research focuses on ambiguity attitudes, including their measurement, relations to people’s well-being, and how to help people better handle uncertainties. She has published on prestigious journals including Management Science, Experimental Economics, Journal or Risk and Uncertainty, Journal of Mathematical Psychology, and Theory and Decision.

Your participation is warmly welcomed!