We study a continuous-time principal-agent model in which the principal is ambiguity averse about agent's effort cost. The robust contract generates seemingly excessive pay-performance sensitivity. worst-case cost high after good performance, but low bad leads to overcompensation and undercompensation respectively provides new rationale for performance-sensitive debt. also characterize incentiv...

This paper considers the impact of ambiguity in strategic situations. It extends the existing literature on games with ambiguity-averse players by allowing for optimistic responses to ambiguity. We use the CEU model of ambiguity with a class of capacities introduced by Jaffray and Philippe (1997), which allows us to distinguish ambiguity from ambiguity-attitude, and propose a new solution conce...

Introduction Propose and provide foundations for a preference model set in an explicitly dynamic framework with uncertainty where: DM is sensitive to ambiguity ambiguity attitude is separated from ambiguity ‡exibility in ambiguity attitude and in scope of ambiguity preferences are dynamically consistent discounted expected utility is a special case beliefs are updated over time