Robustness and Ambiguity Aversion in General Equilibrium

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 ...

Ambiguity Aversion, Robustness, and the Variational Representation of Preferences

We characterize in the Anscombe Aumann framework the preferences for which there are a utility function u on outcomes and an ambiguity index c on the set of probabilities on the states of the world such that, for all acts f and g, f % g , min p Z u (f) dp+ c (p) min p Z u (g) dp+ c (p) : The function u represents the decision maker’s risk attitudes, while the index c captures his ambiguity atti...

Risk and Robustness in General Equilibrium

Gender Differences in Risk Aversion and Ambiguity Aversion

Gender Differences in Risk Aversion and Ambiguity Aversion This paper demonstrates gender differences in risk aversion and ambiguity aversion. It also contributes to a growing literature relating economic preference parameters to psychological measures by asking whether variations in preference parameters among persons, and in particular across genders, can be accounted for by differences in pe...

Preliminary and Incomplete Risk and Robustness in General Equilibrium

A ‘robust decision maker’ suspects that his model is misspecified and makes decisions that work well over a restricted range of specification errors around a base or ‘reference’ model. In the context of a discrete time linear-quadratic permanent income model, Hansen, Sargent and Tallarini (1997) (HST) used a single parameter – taken from a version of Jacobson and Whittle’s ‘risk-sensitivity’ co...