Topic: Source Theory: A Tractable and Positive Ambiguity Theory

Guest: Prof. Han Bleichrodt

Full professor of economics at the University of Alicante, Spain

Date: April 28^th, 2025 (Monday)

Time: 14:00-15:30

Venue: T2-306

Language: English

Lecture mode: On-site participation

Abstract

This paper introduces source theory, a new theory for decision under ambiguity (unknown probabilities). It shows how Savage’s subjective probabilities, with source-dependent nonlinear weighting functions, can model Ellsberg’s ambiguity. It can do so in Savage’s framework of state-contingent assets, permits nonexpected utility for risk, and avoids multistage complications. It is tractable, shows ambiguity attitudes through simple graphs, is empirically realistic, and can be used prescriptively. We provide a new tool to analyze weighting functions: pmatchers. They give Arrow–Pratt-like transformations but operate “within” rather than “outside” functions. We further show that ambiguity perception and inverse S probability weighting, seemingly unrelated concepts, are two sides of the same “insensitivity” coin.

About the Speaker

Han Bleichrodt is full professor of economics at the University of Alicante, Spain. Before he was full professor at Erasmus University in Rotterdam, the Netherlands and the Australian National University in Canberra, Australia. His main areas of research are behavioral economics and health economics, in particular decision under risk and ambiguity, intertemporal choice and the measurement of quality of life. He has published nearly 100 articles in peer reviewed journals like Econometrica, American Economic Review, Management Science, Journal of Economic Theory, Review of Economics and Statistics, and Journal of Health Economics. He has served on the boards of various journals and was the department editor of Decision Analysis at Management Science from 2014-2018.