Related papers: Higher-Order Ambiguity Attitudes
We represent preferences that exhibit absolute or relative attitudes towards ambiguity without assuming convexity of preferences. Our analysis is motivated by the recent experimental evidence by Baillon and Placido (2019) indicating that…
We axiomatize the Choquet rank-dependent utility model within a Savage framework with an exogenous source of pure risk. This model is a decision model under ambiguity, serving as a conceptual generalization of the Choquet expected utility…
I introduce novel preference formulations which capture aversion to ambiguity about unknown and potentially time-varying volatility. I compare these preferences with Gilboa and Schmeidler's maxmin expected utility as well as variational…
An unconventional approach for optimal stopping under model ambiguity is introduced. Besides ambiguity itself, we take into account how ambiguity-averse an agent is. This inclusion of ambiguity attitude, via an $\alpha$-maxmin nonlinear…
We design and implement lab experiments to evaluate the normative appeal of behavior arising from models of ambiguity-averse preferences. We report two main empirical findings. First, we demonstrate that behavior reflects an incomplete…
We consider portfolio selection under nonparametric $\alpha$-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion. Implied demand functions are…
We show that risk-aware behaviors in demand response originate from superquadratic state-dependent cost functions and price uncertainty with skewed distributions. We obtain such results through developing a novel theoretical demand response…
Complexity of the problem of choosing among uncertain acts is a salient feature of many of the environments in which departures from expected utility theory are observed. I propose and axiomatize a model of choice under uncertainty in which…
Employing a generalized definition of Pratt (1964) and Arrow's (1965, 1971) probability premium, we introduce a new concept of attitude towards probability. We illustrate in a problem of risk sharing that whether attitude towards…
This paper axiomatizes, in a two-stage setup, a new theory for decision under risk and ambiguity. The axiomatized preference relation $\succeq$ on the space $\tilde{V}$ of random variables induces an ambiguity index $c$ on the space…
Gilboa and Schmeidler's (1989) uncertainty aversion plays a central role in decision theory and economics, yet many inconsistent behaviors have been observed in experiments. Motivated by this, we study an axiom postulating a minimal degree…
Diversification represents the idea of choosing variety over uniformity. Within the theory of choice, desirability of diversification is axiomatized as preference for a convex combination of choices that are equivalently ranked. This…
Choquet capacities and integrals are central concepts in decision making under ambiguity or model uncertainty, pioneered by Schmeidler. Motivated by risk optimization problems for quantiles under ambiguity, we study the subclass of Choquet…
We distinguish two frameworks for decisions under ambiguity: evaluate-then-aggregate (ETA) and aggregate-then-evaluate (ATE). Given a statistic that represents the decision maker's pure-risk preferences (such as expected utility) and an…
This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply \textit{correlation aversion}. Greater persistence provides information about future consumption but reduces…
Monotonicity and recursivity are central assumptions in intertemporal consumption problems under ambiguity. We show that monotone recursive preferences admit both a recursive and an ex-ante representation, and that the certainty equivalent…
This paper considers dynamic moral hazard settings, in which the consequences of the agent's actions are not precisely understood. In a new continuous-time moral hazard model with drift ambiguity, the agent's unobservable action translates…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
Ambiguity-averse decision makers typically dislike not only the presence of ambiguous events but also their increase, contrary to what standard ambiguity models predict. We axiomatically study such a decision maker. She avoids ex ante…
We obtain a full characterization of consistency with respect to higher-order stochastic dominance within the rank-dependent utility model. Different from the results in the literature, we do not assume any condition on the utility…