Under expected utility theory, the decision-maker is more ambiguous averse the more weight he puts on the highest probability of the preferred outcome occuring.
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Q6: Figure 9.1 reflects the following idea:
Q7: The Independence Axiom describes how people should
Q8: The common outcome effect is an example
Q9: The certainty effect is a rational preference
Q10: Both the outcome effect and the certainty
Q12: With probability weighting, the weighting function
Q13: Ambiguity aversion occurs when individuals show a
Q14: Knightian risk refers to situations in which
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Q15: The heart of Bernoulli's solution to the
Q16: Consider three gambles:
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