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A Characterization of Risk-Neutral and Ambiguity-Averse Behavior

Gerasimou, Georgios (2015): A Characterization of Risk-Neutral and Ambiguity-Averse Behavior.

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Abstract

This paper studies a decision maker who chooses monetary bets/investment portfolios under pure uncertainty. Necessary and sufficient conditions on his preferences over these objects are provided for his choice behavior to be guided by the *maxmin expected value* rule, and therefore to exhibit both ``risk neutrality'' and ambiguity aversion. This result is obtained as an extension of a simple re-characterization of de Finetti's theorem on maximization of subjective expected value.

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