Ambiguity aversion and the absence of wage indexation
نویسندگان
چکیده
منابع مشابه
Ambiguity aversion and the absence of wage indexation
This paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are, instead, ambiguity (or uncertainty) averse decision makers who maximize Choquet expected utility. We show that such agents will choose not to include any indexation coverage in their wage contracts even when inflation is uncertain, unless the perceived inflation uncertainty is hi...
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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...
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Following the seminal works of Schmeidler (1989), Gilboa and Schmeidler (1989), roughly put, an agent’s subjective beliefs are said to be ambiguous if the beliefs may not be represented by a unique probability distribution, in the standard Bayesian fashion, but instead by a set of probabilities. An ambiguity averse decision maker evaluates an act by the minimum expected value that may be associ...
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Indexation clause is introduced in a dynamic general equilibrium model with nominal wage contracts. We Þrst look into the optimal degree of indexation and then its effect on the business cycle. We have found that the optimal degree of indexation is around 50% with little vatiation with the contract length. Indexing the wage contract optimally makes the business cycle in the model economy much c...
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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 ...
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ژورنال
عنوان ژورنال: Journal of Monetary Economics
سال: 2004
ISSN: 0304-3932
DOI: 10.1016/j.jmoneco.2003.08.012