Efficient Allocations under Ambiguity

Tomasz Strzalecki and Jan Werner

Working Paper from Harvard University OpenScholar

Abstract: An important implication of the expected utility model under risk aversion is that if agents have the same probability belief, then the efficient allocations under uncertainty are comonotone with the aggregate endowment, and if their beliefs are concordant, then the efficient allocations are measurable with respect to the aggregate endowment. We study these two properties of efficient allocations for models of preferences that exhibit ambiguity aversion using the concept of conditional belief, which we introduce in this paper. We provide characterizations of such conditional beliefs for the standard models of preferences used in applications. ?

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Related works:
Journal Article: Efficient allocations under ambiguity (2011)
Working Paper: Efficient Allocations under Ambiguity (2011)
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