“Small Worlds: Modeling Attitudes toward Sources of Uncertainty” by Soo Hong CHEW
Soo Hong CHEW
Hong Kong University of Science and Technology
Jacob S. SAGI
We introduce the concept of a conditional small world event domain—an extension of Savage’s (1954) notion of a ‘small world’—as a self-contained collection of comparable events. Under weak behavioral conditions we demonstrate probabilistic sophistication in any small world event domain without relying on monotonicity or continuity. Probabilistic sophistication within, though not necessarily across, small worlds offers a foundation for modeling a decision maker’s attitudes towards different sources of uncertainty encompassing and extending the distinction between risk and ‘ambiguity’ often associated with Ellsberg-type behavior.