Venky1024 comments on Ambiguity aversion and reduction of X-risks: A modelling situation

[Venky1024]

I didn’t get the intuition behind the initial formulation:

$EU\left(f\right)=\alpha {min}_{p\in C}{E}_{p}U\left(f\right)+(1-\alpha ){max}_{p\in C}{E}_{p}U\left(f\right)$

What exactly is that supposed to represent? And what was the basis for assigning numbers to the contingency matrix in the two example cases you’ve considered?

[Benedikt Schmidt]

Thanks for your question!
This is how the $\alpha$-maxmin model is defined. You can consider the coefficient $\alpha$ as a sort of pessimism index. For details, see the source Ghirardato et al.

It is supposed to represent the extreme cases.
The numbers in the examples are exemplary. The purpose is to have two different cases in order to study.