A simplified axiomatic approach to ambiguity aversion

This paper takes the Anscombe–Aumann framework with horse and roulette lotteries, and applies the Savage axioms to the horse lotteries and the von Neumann–Morgenstern axioms to the roulette lotteries. The resulting representation of preferences yields a subjective probability measure over states and two utility functions, one governing risk attitudes and one governing ambiguity attitudes. The model is able to accommodate the Ellsberg paradox and preferences for reductions in ambiguity.