Does Uncertainty Vanish in the Small? The Smooth Ambiguity Case

Massimo Marinacci, Doriana Ruffino and Fabio Maccheroni
Additional contact information
Fabio Maccheroni: Bocconi University

No 619, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: We study orders of risk and model uncertainty aversion in the smooth ambiguity model proposed by Klibanoff, Marinacci, and Mukerji (2005). We consider a quadratic approximation of their model and we show that both risk and model uncertainty attitudes have at most a second order effect. Specifically, the order depends on the properties of the support of the decision maker's limit prior, which we fully characterize. We find that model uncertainty attitudes have a second order effect unless the support is a singleton, that is, unless model uncertainty fades away in the limit. Specializing our general analysis to the case of a binomial state space allows relating the results to important applications in stochastic calculus and mathematical finance.

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2011/paper_619.pdf (application/pdf)

Related works:
Working Paper: Does Uncertainty Vanish in the Small? The Smooth Ambiguity Case (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:619

Access Statistics for this paper

More papers in 2011 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().