This paper considers a two period consumption-saving model in which future income is uncertain. If the future income is also ambiguous, in the sense of having multiple priors, then ambiguity attitudes also a¤ect the saving decision. Unlike one-period decision problems, ambiguity attitude does more than just distort the probabilities of the various priors. It also distorts the relative importanc...

In this short paper, uncertainties on resource stock and on technical progress are introduced into an intertemporal equilibrium model of optimal extraction of a non-renewable resource. The representative consumer maximizes a recursive utility function which disentangles between intertemporal elasticity of substitution and risk aversion. A closed-form solution is derived for both the optimal ext...

Decision making of agents who are members of a society is analyzed from the point of view of quantum decision theory. This generalizes the approach, developed earlier by the authors for separate individuals, to decision making under the influence of social interactions. The generalized approach not only avoids paradoxes, typical of classical decision making based on utility theory, but also exp...

In an exchange economy under uncertainty populated by multiple consumers, we how the heterogeneity in the individual consumers’ subjective beliefs affect the representative consumer’s utility function. We derive a formula that indicates that the more heterogeneous the individual consumers’ beliefs are, the higher probabilities the representative consumer’s belief attaches to extreme events that...

We analyze a simple strategic model of interaction between central bank and labor union. We assume that the intransparency of the central bank (labor union) induces Knightian uncertainty faced by the labor union (central bank). Knightian uncertainty means that decision makers are unable to make exact probability judgements. It is modelled by Choquet Expected Utility Theory and its recent applic...

We study the representative consumer’s risk attitude and efficient risk-sharing rules in a singleperiod, single-good economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the curvature of an individual cons...

Heterogeneity in Risky Choice Behaviour in a Broad Population We analyse risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: Utility curvature, loss aversion, preferences towards the timing of uncertainty resolution, a...

Many economic decisions can be described as an option exercise or optimal stopping problem under uncertainty. Motivated by experimental evidence such as the Ellsberg Paradox, we follow Knight (1921) and distinguish risk from uncertainty. To afford this distinction, we adopt the multiple-priors utility model. We show that the impact of ambiguity on the option exercise decision depends on the rel...

We propose a multivariate extension of Yaari’s dual theory of choice under risk. We show that a decision maker with a preference relation on multidimensional prospects that preserves first order stochastic dominance and satisfies comonotonic independence behaves as if evaluating prospects using a weighted sum of quantiles. Both the notions of quantiles and of comonotonicity are extended to the ...

In this article, our objective is to determine efficient allocations in economies with multiple agents having recursive utility functions. Our main result is to show that in a multiagent economy, the problem of determining efficient allocations can be characterized in terms of a single value function (that of a social planner), rather than multiple value functions (one for each investor), as ha...