Survival with ambiguity

Survival with ambiguity

We analyze a market populated by expected utility maximizers and smooth ambiguity-averse consumers. We study conditions under which ambiguity-averse consumers survive and affect prices in the limit. If ambiguity vanishes with time or if the economy exhibits no aggregate risk, ambiguity-averse consumers survive, but have no long-run impact on prices. In both scenarios, ambiguity-averse consumers...

Triangular approximations of fuzzy number with value and ambiguity functions

Optimal auctions with ambiguity

A crucial assumption in the optimal auction literature is that each bidder’s valuation is known to be drawn from a unique distribution. In this paper, we study the optimal auction problem allowing for ambiguity about the distribution of valuations. Agents may be ambiguity averse (modeled using the maxmin expected utility model of Gilboa and Schmeidler 1989). When the bidders face more ambiguity...

Ambiguity with Repeated Experiments

The paper generalizes de Finetti’s exchangeable Bayesian model of beliefs and preference for a setting with repeated experiments. The model is axiomatic and provides behavioral meaning and foundations for decisionmaking guided by the following perception: The outcomes of experiments depend on both common factors, or “parameters”, about which prior beliefs may be imprecise, and on factors that v...

Ambiguity and Ambiguity Aversion

Consider the following choice problem, known as “Ellsberg’s three-color urn example”, or simply the “Ellsberg Paradox” (Ellsberg [7]). An urn contains 30 red balls, and 60 green and blue balls, in unspecified proportions; subjects are asked to compare (i) a bet on a red draw vs. a bet on a green draw, and (ii) a bet on a red or blue draw vs. a bet on a green or blue draw. If the subject wins a ...