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33
Vector Expected Utility and Attitudes toward Variation
, 2007
"... This paper analyzes a model of decision under ambiguity, deemed vector expected utility or VEU. According to the proposed model, an act f: Ω → X is evaluated via the functional V (f) = ..."
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Cited by 30 (5 self)
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This paper analyzes a model of decision under ambiguity, deemed vector expected utility or VEU. According to the proposed model, an act f: Ω → X is evaluated via the functional V (f) =
Small worlds: Modeling attitudes toward sources of uncertainty
 Journal of Economic Theory
"... Abstract We introduce the concept of a conditional small world event domainan extension of Savage's [33] notion of a 'small world'as a selfcontained collection of comparable events. Under weak behavioral conditions we demonstrate probabilistic sophistication in any small world eve ..."
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Cited by 29 (3 self)
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Abstract We introduce the concept of a conditional small world event domainan extension of Savage's [33] notion of a 'small world'as a selfcontained collection of comparable events. Under weak behavioral conditions we demonstrate probabilistic sophistication in any small world event domain without relying on monotonicity or continuity. Probabilistic sophistication within, though not necessarily across, small worlds provides a foundation for modeling a decision maker that has sourcedependent risk attitudes. This also helps formalize the idea of source preference and suggests an interpretation of ambiguity aversion, often associated with Ellsbergtype behavior, in terms of comparative risk aversion across small worlds.
Ambiguity without a State Space
, 2003
"... Many decisions involve both imprecise probabilities and intractable states of the world. Objective expected utility assumes unambiguous probabilities; subjective expected utility assumes a completely specified state space. This paper analyzes a third domain of preference: sets of consequential lotte ..."
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Cited by 29 (2 self)
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Many decisions involve both imprecise probabilities and intractable states of the world. Objective expected utility assumes unambiguous probabilities; subjective expected utility assumes a completely specified state space. This paper analyzes a third domain of preference: sets of consequential lotteries. Using this domain, we develop a theory of Knightian ambiguity without explicitly invoking any state space. We characterize a representation that integrates a monotone transformation of first order expected utility with respect to a second order measure. The concavity of the transformation and the weighting of the measure capture ambiguity aversion. We propose a definition for comparative ambiguity aversion and uniquely characterize absolute ambiguity neutrality. Finally, we discuss applications of the theory: reinsurance, games, and a mean–variance–ambiguity portfolio frontier.
Bernoulli Without Bayes: A Theory of UtilitySophisticated Preferences under Ambiguity
, 2006
"... A decisionmaker is utilitysophisticated if he ranks acts according to their expected utility whenever such comparisons are meaningful. We characterize utility sophistication in cases in which probabilistic beliefs are not too imprecise, and show that in these cases utilitysophisticated preference ..."
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Cited by 10 (2 self)
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A decisionmaker is utilitysophisticated if he ranks acts according to their expected utility whenever such comparisons are meaningful. We characterize utility sophistication in cases in which probabilistic beliefs are not too imprecise, and show that in these cases utilitysophisticated preferences are completely determined by consequence utilities and event attitudes captured by preferences over bets. The AnscombeAumann framework as employed in the classical contributions of Schmeidler (1989) and GilboaSchmeidler (1989) can be viewed as an important special case. For the class of utility sophisticated preferences with sufficiently precise beliefs, we also propose a definition of revealed probabilistic beliefs that overcomes the limitations of existing definitions.
The Uncertainty Premium in an Ambiguous Economy”, Working Paper
, 2007
"... The uncertainty premium is the premium that is derived from not knowing the sure outcome (risk premium) and from not knowing the precise odds of outcomes (ambiguity premium). A recent paper by Klibanoff, Marinacci and Mukerji (KMM, 2005) generalizes a smooth version of the maxmin expected utility m ..."
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Cited by 7 (0 self)
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The uncertainty premium is the premium that is derived from not knowing the sure outcome (risk premium) and from not knowing the precise odds of outcomes (ambiguity premium). A recent paper by Klibanoff, Marinacci and Mukerji (KMM, 2005) generalizes a smooth version of the maxmin expected utility model with multiple priors. We construct the uncertainty premium based on the KMM model (generalizing Pratt’s risk premium). We show that when consumer preferences are characterized by constant relative risk and ambiguity aversion, the uncertainty premium can decrease with an increase in agent risk aversion. This happens because increasing risk aversion always results in a lower ambiguity premium. Similar qualitative results hold for the case of constant absolute ambiguity aversion. The positive ambiguity premium might give an additional explanation to the equity premium puzzle.
Rational expectations and ambiguity: A comment on Abel (2002
 Economics Bulletin
, 2006
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Ambiguity and rational expectations equilibria ∗
, 2007
"... This paper proves the existence and robustness of partiallyrevealing rational expectations equilibria (REE) when this equilibrium concept is expanded to allow for some agents to have preferences that display ambiguity aversion. Furthermore, the generic existence of fully revealing REE is proven fo ..."
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Cited by 5 (1 self)
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This paper proves the existence and robustness of partiallyrevealing rational expectations equilibria (REE) when this equilibrium concept is expanded to allow for some agents to have preferences that display ambiguity aversion. Furthermore, the generic existence of fully revealing REE is proven for a commonlyused subset of the class of ambiguity averse preferences. This finding illustrates that models with ambiguity aversion provide a relatively tractable framework through which partial information revelation may be studied in a general equilibrium setting without relying on particular distributional assumptions or the presence of noise traders. Constructive examples provide further insight into the properties of these equilibria.
Sharing Risk and Ambiguity
, 2008
"... We study the market implications of ambiguity in many common models. We show that generic determinacy is a robust feature in many general equilibrium models that allow a distinction between ambiguity and risk. ..."
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Cited by 5 (0 self)
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We study the market implications of ambiguity in many common models. We show that generic determinacy is a robust feature in many general equilibrium models that allow a distinction between ambiguity and risk.