Ambiguity Aversion and Absence of Trade∗

In a equilibrium model with uncertainty averse consumers, we prove that more ambiguity aversion implies less trade. The reduction in trade caused by ambiguity aversion can be as severe as to lead to no-trade, even in the Choquet Expected Utility (CEU) or Maximin Expected Utility (MEU) models. Our results do not assume that consumers have constant endowments, as usual in the literature, but only the mild condition that endowments are unambiguous. The key for these results is an additive result that does not require the risky assets to be comonotonic, as previous results do. We discuss how these ideas can be used to explain puzzles in economics and finance as the home bias effect.