Baillon, A., Bleichrodt, H., Li, C. and Wakker, P. (2025). Source Theory: A Tractable and Positive Ambiguity Theory Management Science, 70(10):8097--8993.

This paper introduces source theory, a new theory for decision under ambiguity (unknown probabilities). It shows how Savage{\textquoteright}s subjective probabilities, with source-dependent nonlinear weighting functions, can model Ellsberg{\textquoteright}s ambiguity. It can do so in Savage{\textquoteright}s framework of state-contingent assets, permits nonexpected utility for risk, and avoids multistage complications. It is tractable, shows ambiguity attitudes through simple graphs, is empirically realistic, and can be used prescriptively. We provide a new tool to analyze weighting functions: pmatchers. They give Arrow-Pratt-like transformations but operate “within” rather than “outside” functions. We further show that ambiguity perception and inverse S probability weighting, seemingly unrelated concepts, are two sides of the same “insensitivity” coin.