Three Layers of Uncertainty

Ilke Aydogan, Loïc Berger, Valentina Bosetti and Ning Liu
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Ilke Aydogan: IÉSEG School Of Management [Puteaux]
Ning Liu: BUAA - Beihang University

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Abstract: We explore decision-making under uncertainty using a framework that decomposes uncertainty into three distinct layers: (1) risk, which entails inherent randomness within a given probability model; (2) model ambiguity, which entails uncertainty about the probability model to be used; and (3) model misspecification, which entails uncertainty about the presence of the correct probability model among the set of models considered. Using a new experimental design, we isolate and measure attitudes toward each layer separately. We conduct our experiment on three different subject pools and document, the existence of a behavioral distinction between the three layers. In addition to

Date: 2023-03-27
New Economics Papers: this item is included in nep-exp, nep-rmg and nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-04370968
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Published in Journal of the European Economic Association, 2023, 21 (5), pp.2209 - 2236. ⟨10.1093/jeea/jvad008⟩

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Related works:
Journal Article: Three Layers of Uncertainty (2023)
Working Paper: Three layers of uncertainty (2022)
Working Paper: Three layers of uncertainty (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04370968

DOI: 10.1093/jeea/jvad008

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