Recursive smooth ambiguity preferences

Peter Klibanoff, Massimo Marinacci and Sujoy Mukerji ()

Journal of Economic Theory, 2009, vol. 144, issue 3, pages 930-976

Abstract: This paper axiomatizes an intertemporal version of the Smooth Ambiguity decision model developed in [P. Klibanoff, M. Marinacci, S. Mukerji, A smooth model of decision making under ambiguity, Econometrica 73 (6) (2005) 1849-1892]. A key feature of the model is that it achieves a separation between ambiguity, identified as a characteristic of the decision maker's subjective beliefs, and ambiguity attitude, a characteristic of the decision maker's tastes. In applications one may thus specify/vary these two characteristics independent of each other, thereby facilitating richer comparative statics and modeling flexibility than possible under other models which accommodate ambiguity sensitive preferences. Another key feature is that the preferences are dynamically consistent and have a recursive representation. Therefore techniques of dynamic programming can be applied when using this model.

Keywords: Ambiguity; Uncertainty; Knightian; uncertainty; Ambiguity; aversion; Uncertainty; aversion; Ellsberg; paradox; Dynamic; decision; making; Dynamic; programming; under; ambiguity; Smooth; ambiguity (search for similar items in EconPapers)
Date: 2009
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Working Paper: Recursive Smooth Ambiguity Preferences (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:jetheo:v:144:y:2009:i:3:p:930-976

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