I say this has nothing to do with ambiguity aversion, because we can replace (1/2, 1/2+-1/4, 1⁄10) with all sorts of things which don’t involve uncertainty. We can make anyone “leave money on the table”. In my previous message, using ($100, a rock, $10), I “proved” that a rock ought to be worth at least $90.
If this is still unclear, then I offer your example back to you with one minor change: the trading incentive is still 1⁄10, and one agent still has 1/2+-1/4, but instead the other agent has 1⁄4. The Bayesian agent holding 1/2+-1/4 thinks it’s worth more than 1⁄4 plus 1⁄10, so it refuses to trade. Whereas the ambiguity averse agents are under no such illustion.
So, the boot’s on the other foot: we trade, and you don’t. If your example was correct, then mine would be too. But presumably you don’t agree that you are “leaving money on the table”.
No, (un)fortunately it is not so.
I say this has nothing to do with ambiguity aversion, because we can replace (1/2, 1/2+-1/4, 1⁄10) with all sorts of things which don’t involve uncertainty. We can make anyone “leave money on the table”. In my previous message, using ($100, a rock, $10), I “proved” that a rock ought to be worth at least $90.
If this is still unclear, then I offer your example back to you with one minor change: the trading incentive is still 1⁄10, and one agent still has 1/2+-1/4, but instead the other agent has 1⁄4. The Bayesian agent holding 1/2+-1/4 thinks it’s worth more than 1⁄4 plus 1⁄10, so it refuses to trade. Whereas the ambiguity averse agents are under no such illustion.
So, the boot’s on the other foot: we trade, and you don’t. If your example was correct, then mine would be too. But presumably you don’t agree that you are “leaving money on the table”.