This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Rational expectations and ambiguity: A comment on Abel (2002)

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Alexander Ludwig () (Mannheim Research Institute for the Economics of Aging, University of Mannheim)
Alexander Zimper () (Sonderforschungsbereich 504, University of Mannheim)

Additional information is available for the following registered author(s):

Abstract

Abel (2002) proposes a resolution of the riskfree rate and the equity premium puzzles by considering pessimism and doubt. Pessimism is characterized by subjective probabilistic beliefs about consumption growth rates that are stochastically dominated by the objective distribution. The subjective distribution is characterized by doubt if it is a mean-preserving spread of the objective distribution. This note offers a decision theoretic foundation of Abel's ad-hoc definitions of pessimism and doubt under the assumption that individuals exhibit ambiguity attitudes in the sense of Schmeidler (1989). In particular, we show that the behavior of a representative agent, who resolves her uncertainty with respect to the true distribution of asset returns in a pessimistic way, is the equivalent to pessimism in Abel's sense. Furthermore, a representative agent, who takes into account pessimistic as well as optimistic considerations, may result in the equivalent to doubt in Abel's sense.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://economicsbulletin.vanderbilt.edu/2006/volume4/EB-05D80045A.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 4 (2006)
Issue (Month): 2 ()
Pages: 1-15
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ebl:ecbull:v:4:y:2006:i:2:p:1-15

Contact details of provider:
Postal: Economics Bulletin, Department of Economics, 414 Calhoun Hall, Vanderbilt University, Nashville TN 37235, USA
Phone: 615-322-2920
Fax: 615-343-8495
Email:
Web page: http://www.economicsbulletin.com

For technical questions regarding this item, or to correct its listing, contact: (John Conley).

Related research
Keywords: ambiguity; Choquet expected utility; e-contaminated priors; equity premium puzzle; optimism; pessimism; rational expectations; riskfree rate puzzle;

Other versions of this item:

Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
G2 - Financial Economics - - Financial Institutions and Services

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Chateauneuf, Alain & Eichberger, Jürgen & Grant, Simon, 2003. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Sonderforschungsbereich 504 Publications 03-10, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
    Other versions:
  2. Marciano Siniscalchi, 2003. "A Behavioral Characterization of Plausible Priors," Levine's Bibliography 234936000000000064, UCLA Department of Economics. [Downloadable!]
    Other versions:
  3. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April. [Downloadable!] (restricted)
  4. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  5. Ghirardato, Paolo & Klibanoff, Peter & Marinacci, Massimo, 1998. "Additivity with multiple priors," Journal of Mathematical Economics, Elsevier, vol. 30(4), pages 405-420, November. [Downloadable!] (restricted)
  6. Hansen, Lars Peter & Sargent, Thomas J & Tallarini, Thomas D, Jr, 1999. "Robust Permanent Income and Pricing," Review of Economic Studies, Blackwell Publishing, vol. 66(4), pages 873-907, October. [Downloadable!] (restricted)
    Other versions:
  7. Wakker, Peter P, 2001. "Testing and Characterizing Properties of Nonadditive Measures through Violations of the Sure-Thing Principle," Econometrica, Econometric Society, vol. 69(4), pages 1039-59, July.
  8. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February. [Downloadable!] (restricted)
  9. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, vol. 63(6), pages 1255-80, November. [Downloadable!] (restricted)
  10. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March. [Downloadable!] (restricted)
  11. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May. [Downloadable!] (restricted)
  12. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February. [Downloadable!] (restricted)
  13. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December. [Downloadable!] (restricted)
  14. Wakker, Peter & Tversky, Amos, 1993. " An Axiomatization of Cumulative Prospect Theory," Journal of Risk and Uncertainty, Springer, vol. 7(2), pages 147-75, October.
  15. Epstein, Larry G, 1999. "A Definition of Uncertainty Aversion," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 579-608, July. [Downloadable!] (restricted)
  16. Sarin, Rakesh K & Wakker, Peter, 1992. "A Simple Axiomatization of Nonadditive Expected Utility," Econometrica, Econometric Society, vol. 60(6), pages 1255-72, November. [Downloadable!] (restricted)
  17. Eichberger, J. & Kelsey, D., 1996. "E-Capacities and the Ellsberg Paradox," Discussion Papers 96-13, Department of Economics, University of Birmingham.
  18. Evan W. Anderson & Lars Peter Hansen & Thomas J. Sargent, 2003. "A Quartet of Semigroups for Model Specification, Robustness, Prices of Risk, and Model Detection," Journal of the European Economic Association, MIT Press, vol. 1(1), pages 68-123, 03. [Downloadable!] (restricted)
  19. Philippe Weil, 1989. "The Equity Premium Puzzle and the Riskfree Rate Puzzle," NBER Working Papers 2829, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  20. Zengjing Chen & Larry Epstein, 2002. "Ambiguity, Risk, and Asset Returns in Continuous Time," Econometrica, Econometric Society, vol. 70(4), pages 1403-1443, July. [Downloadable!] (restricted)
    Other versions:
  21. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Isaac Kleshchelski & Nicolas Vincent, 2007. "Robust Equilibrium Yield Curves," Cahiers de recherche 08-02, HEC Montréal, Institut d'économie appliquée. [Downloadable!]
  2. Tigran Melkonyan & Mark Pingle, 2008. "Ambiguity, Pessimism, and Religious Choice," Working Papers 08-002, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics. [Downloadable!]
Statistics
Access and download statistics

Did you know? RePEc also has a blog.

This page was last updated on 2009-11-16.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.