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dc.contributor.authorIzhakian, Yehuda-
dc.description.abstractOrdering alternatives by their degree of ambiguity is a crucial element in decision processes in general and in asset pricing in particular. So far the literature has not provided an applicable measure of ambiguity allowing for such ordering. The current paper addresses this need by introducing a novel empirically applicable ambiguity measure derived from a new model of decision making under ambiguity, called shadow probability theory, in which probabilities of events are themselves random. In this model a complete distinction is attained between preferences and beliefs and between risk and ambiguity that enables the degree of ambiguity to be measured. The merits of the model are demonstrated by incorporating ambiguous probabilities into asset pricing and it is proved that the well defined ambiguity premium that the paper proposes can be measured empirically.en
dc.rightsCopyright Yehuda Izhakian, 2012.en
dc.subjectambiguity measureen
dc.subjectambiguity aversionen
dc.subjectknightian uncertaintyen
dc.subjectshadow probability theoryen
dc.subjectchoquet expected utilityen
dc.subjectcumulative prospect theoryen
dc.subjectellsber paradoxen
dc.subjectambiguity premiumen
dc.titleAmbiguity Measurementen
dc.typeWorking Paperen
Appears in Collections:Economics Working Papers

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