Three layers of uncertainty and the role of model misspecification
Ilke Aydogan (),
Valentina Bosetti () and
Additional contact information
Ilke Aydogan: IÉSEG School Of Management [Puteaux]
Ning Liu: Beihang University
Working Papers from HAL
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 uncertainty, which entails subjective 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 measure individual attitudes towards these di↵erent layers of uncertainty and examine the role of each of them in characterizing attitudes towards ambiguity. In addition to providing new insights into the underlying processes behind ambiguity aversion, our study provides the first empirical evidence of the role of model misspecification in decision-making under uncertainty.
Keywords: Ambiguity aversion; model uncertainty; model misspecification; non-expected utility; reduction of compound lotteries (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hpe and nep-upt
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-03031751
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Working Paper: THREE LAYERS OF UNCERTAINTY AND THE ROLE OF MODEL MISSPECIFICATION (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-03031751
Access Statistics for this paper
More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().