COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1667

AFFECTIVE DECISION MAKING AND THE ELLSBERG PARADOX

Anat Bracha and Donald J. Brown

June 2008

We characterize, in the framework for variational preferences, the affective decision making model of choice under risk and uncertainty introduced by Bracha and Brown (2007). This characterization (i) provides a rigorus decision-theoretic foundation for affective decision making, (ii) offers an axiomatic explanation for ambiguity-seeking in the Ellsberg Paradox and (iii) suggests a dual representation of ADM games in terms of the Legendre-Fenchel conjugate.

JEL Classification: D01, D81, G22

Keywords: Ellsberg paradox, Schmeidler's axiom, Affective decision making, Variational preferences, Legendre-Fenchel conjugate