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Ambiguity and Economic Models

Wiesenfarth, Boris Roland

German Title: Ambiguität und ökonomische Modelle

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Abstract

This thesis is based on a collection of essays and studies the behavioral consequences of the concept of ambiguity for a variety of economic models. After introducing the reader to the fundamentals of decision-theory, I proceed by considering a Hotelling duopoly game under demand ambiguity. Firms' preferences are assumed to be of the Choquet-expected-utility-type. In this framework, I derive firms' subgame-perfect product differentiation. It turns out that confidence is a differentiation force when firms are sufficiently optimistic. This finding has important consequences for the interpretation of various applications of Hotelling models under uncertainty treated by Król (2012). Subsequently, ambiguity is implemented in the context of primary prevention. In particular, I contemplate a physician-counseling model where Choquet-expected-utility-maximizing patients face ambiguity with respect to the relationship between their level of adherence to a preventive regime and the resulting probability of disease. In this framework, I examine the effect of confidence and optimism on preventive activities. It turns out that the effect of optimism on prevention is determined by two concurrent effects, which are denoted as "perceived efficacy effect" and "expected marginal utility effect". The perceived efficacy effect captures the fact that optimists and pessimists might differ in their assessment of the preventive regime's capability to reduce the underlying probability of disease. The expected marginal utility effect takes into account that a shift in the perceived disease probability might increase or decrease marginal gains or losses from additional units of prevention. In the following step, I introduce information into the previous setting. Information is modeled by means of an imprecise signal provided by the physician. Patients update their beliefs in the light of new information by using one of the three major updating rules for neo-additive capacities introduced by Eichberger et al. (2010). It turns out that Knightian uncertainty can, depending on the underlying updating rule, provide an explanation for poor patient compliance as well as excessive preventive behavior. The ensuing chapter turns to the famous Blackwell's theorem and its extension to MEU-preferences proposed by Ҫelen (2012) showing that Ҫelen’s notion of a value of information under MEU is incompatible with dynamic consistency. Finally, I conclude with an application of ambiguity to monopoly pricing. Using the most prominent models of decision-making under ambiguity, I derive the implications of ambiguity for monopoly pricing. In the Choquet case with neo-additive capacities, I can demonstrate that pessimism reduces the resulting monopoly price whereas confidence decreases (increases) monopoly prices if the monopolist is sufficiently optimistic (pessimistic).

Item Type: Dissertation
Supervisor: Eichberger, Prof. Dr. Jürgen
Place of Publication: Heidelberg, Deutschland
Date of thesis defense: 7 March 2016
Date Deposited: 17 Mar 2016 09:52
Date: 2016
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 300 Social sciences
330 Economics
Controlled Keywords: Entscheidung bei Unsicherheit, Entscheidungsverhalten, Ambiguität
Uncontrolled Keywords: Entscheidungstheorie, Gesundheitsprävention unter Ambiguität, Produktdifferenzierung unter Ambiguität, Blackwell Theorem
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