Rational Preferences under Ambiguity

This paper analyzes preferences in the presence of ambiguity that are rational in the sense of satisfying the classical ordering condition as well as monotonicity. Under technical conditions that are natural in an Anscombe–Aumann environment, we show that even for such a general preference model, it is possible to identify a set of priors, as first envisioned by Ellsberg (Q J Econ 75:643–669, 1961). We then discuss ambiguity attitudes, as well as unambiguous acts and events, for the class of rational preferences we consider.