Money Pumps for Agents Who Are Ambiguity Averse or Ambiguity Seeking

We argue that under general conditions, agents who exhibit Ellsberg-style ambiguity aversion (or ambiguity seekingness) are subject to money pumps: they will give up, for no gain, what they could have kept for free. The argument differs from existing results in three ways. First, it gains generality by depending on only minimal assumptions about the target agent. Second, unlike standard approaches that appeal to backward induction, the argument does not assume that rational agents expect that they will choose rationally after having made an irrational choice. Third, the argument is particularly simple.