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Knightian decision theory and econometric inferences

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  • Bewley, Truman F.
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    Abstract

    An uncertainty averse Knightian decision maker has a set of probability distributions over outcomes and chooses something other than the status quo only if the change increases the expected payoff according to all the distributions. It is possible to define a standardized degree of uncertainty aversion. To each such degree, there corresponds a set of prior distributions over the parameters of a Gaussian linear regression model, these priors being centered on a uniform prior. The set of posterior means corresponding to this set of priors has the same properties as a standard confidence region.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 146 (2011)
    Issue (Month): 3 (May)
    Pages: 1134-1147

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    Handle: RePEc:eee:jetheo:v:146:y:2011:i:3:p:1134-1147

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    Web page: http://www.elsevier.com/locate/inca/622869

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    Keywords: Confidence regions Bayesian analysis Knight Incomplete preferences Choice under uncertainty;

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    1. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
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    Cited by:
    1. Corbae, Dean & Marimon, Ramon, 2011. "Introduction to Incompleteness and Uncertainty in Economics," Journal of Economic Theory, Elsevier, vol. 146(3), pages 775-784, May.
    2. Marc-Arthur Diaye & Gleb Koshevoy, 2011. "Random Sets Lotteries and Decision Theory," Documents de recherche 11-09, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    3. Wei-ling Chen & Leh-chyan So, 2014. "Validation of the Merton Distance to the Default Model under Ambiguity," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 7(1), pages 13-27, March.
    4. Tamini, Lota D., 2012. "Optimal quality choice under uncertainty on market development," MPRA Paper 40845, University Library of Munich, Germany.

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