We analyze the policy implications of aversion to Knightian uncertainty (or ambiguity) about the possibility of tipping points. We demonstrate two channels through which uncertainty aversion affects optimal policy in the general setting. The first channel relates to the policy’s effect on the probability of tipping, and the second channel to its differential impact in the preand post-tipping re...

We apply a model of preferences about the presence and absence information to domain decision making under risk ambiguity. An uncertain prospect exposes an individual 1 or more gaps, specific unanswered questions that capture attention. Gambling makes these important, attracting attention them. To extent uncertainty (or other circumstances) gaps unpleasant think about, tends be averse Yet in ci...

Machina (2009, 2012) lists a number of situations where standard models of ambiguity aversion are unable to capture plausible features of ambiguity attitudes. Most of these problems arise in choice over prospects involving three or more outcomes. We show that the recursive non-expected utility model of Segal (1987) is rich enough to accommodate all these situations. JEL Classification number: D81

Ellsberg’s experiment is extended to study the association between ambiguity aversion and violation of reduction of compound lotteries. It is shown that the two phenomena are strongly associated. Further analysis reveals two di¤erent forms of association, which correspond to alternative theoretical models that account for ambiguity attitudes. JEL Classi…cation: D81, C91.

Decision biases can distort cost-benefit evaluations of uncertain risks, leading to risk management policy decisions with predictably high retrospective regret. We argue that well-documented decision biases encourage learning aversion, or predictably suboptimal learning and premature decision making in the face of high uncertainty about the costs, risks, and benefits of proposed changes. Biases...

This paper proves the existence and robustness of partially-revealing 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 fullyrevealing REE is proven for a commonly-used subset of the class of ambiguity averse preferences. This finding illustrates tha...

T paper presents a field study into the effects of statistical information concerning risks on willingness to take insurance, with special attention being paid to the usefulness of these effects for the clients (the insured). Unlike many academic studies, we were able to use in-depth individual interviews of a large representative sample from the general public (N = 476). The statistical inform...