RECURSIVE AMBIGUITY AND MACHINA'S EXAMPLES

Machina (American Economic Review 99 (2009), 385-392; American Economic Review 104 (2014), 3814-40) lists a number of situations where Choquet expected utility, as well as other known models of ambiguity aversion, cannot capture plausible features of ambiguity attitudes. Most of these problems arise in choice over prospects involving three or more outcomes. We show that the recursive nonexpected utility model of Segal (International Economic Review 28 (1987), 175-202) is rich enough to accommodate all these situations and, moreover, that this can be done using the same functional form for all situations.