Choices under ambiguity with familiar and unfamiliar outcomes

Choices under ambiguity with familiar and unfamiliar outcomes

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Article ID: iaor2006561
Country: Netherlands
Volume: 58
Issue: 2
Start Page Number: 195
End Page Number: 207
Publication Date: Mar 2005
Journal: Theory and Decision
Authors: , ,
Abstract:

This paper considers a decision-making process under ambiguity in which the decision-maker is supposed to split outcomes between familiar and unfamiliar ones. She is assumed to behave differently with respect to unfamiliar gains, unfamiliar losses and customary (familiar) outcomes. In particular, she is supposed to be pessimistic on gains, optimistic on losses and ambiguity neutral on the familiar outcomes. A generalization of the usual Choquet Integral is formalized when the decision maker holds capacities and probabilities. A characterization of the decision-maker's behavior is provided for a specific subset of capacities, in which it is shown that the decision-maker underestimates the unfamiliar outcomes but is linear in probabilities on customary ones.

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