A Cognitive Theory of Ambiguity Attitudes

• Authors: Fernando Payró Chew, Norio Takeoka and Jianming Xia
• BSE Working Paper: 1587 | July 2026
• Keywords: ambiguity attitude, cognitive optimization, comonotonicity, Choquet expected utility, Machina’s paradox
• JEL codes: D11, D81

This paper provides axiomatic foundations for a model in which ambiguity attitudes are endogenously determined through cognitive optimization. The decision maker evaluates acts using alternative non-additive aggregation rules and optimally trades off the benefits of less ambiguity-averse evaluation against cognitive cost. The resulting framework generalizes Choquet expected utility and accounts for preference reversals identified by Machina (2009). The model is characterized by a novel axiom, Comonotonic Convexity, which regulates the evaluation of mixtures by requiring the decision maker to avoid hedging whenever it yields no benefit. We interpret this axiom as reflecting aversion to unnecessary complexity in the evaluation of acts.