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Rather, it results from MLU’s selection of extreme priors, causing a violation of the stability of set inclusion over the course of the updating process.

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Maximum-likelihood updating (MLU) is a well-known approach for extending static ambiguity sensitive preferences to dynamic set-ups.

This paper develops an example in which MLU induces an ambiguity averse maxmin expected utility (MEU) decision-maker to (1) prefer a bet on an ambiguous over a risky urn and (2) be more willing to bet on the ambiguous urn compared to an (ambiguity neutral) subjective expected utility (SEU) decision-maker.

Since scans are not currently available to screen readers, please contact JSTOR User Support for access. Second, we argue that the mathematical objects referred to as “beliefs” in the ambiguity aversion literature have little to do with how an economist or game theorist understands and uses the concept.This is because of the lack of a useful notion of updating.We provide a critical assessment of the ambiguity aversion literature, which we characterize in terms of the view that Ellsberg choices are rational responses to ambiguity, to be explained by relaxing Savage's Sure-Thing principle and adding an ambiguity-aversion postulate.First, admitting Ellsberg choices as rational leads to behaviour, such as sensitivity to irrelevant sunk cost, or aversion to information, which most economists would consider absurd or irrational.

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