Risk, Ambiguity, and the Savage Axioms
A discussion of a class of situations in which many reasonable people neither wish nor tend to conform to the Savage postulates of rational behavior. There is no way to infer meaningful probabilities for events, even approximately or qualitatively, from their choices in these situations, nor can they be described as acting as if they were maximizing the mathematical expectation of utility, in terms of any probabilities whatever. None of the familiar criteria for predicting or prescribing decisionmaking under uncertainty corresponds to this pattern of choices. Yet the behavior is deliberate and orderly, and it can be described in terms of a simple, specified decision rule. Such self-consistent behavior violating the Savage axioms seems to occur in situations that can be described as highly ambiguous. In reaching a decision under these circumstances, many people seem to act conservatively. Without actually expecting the worst, they choose to act as if the worst outcomes were somewhat more likely than their best estimates of likelihood would indicate.