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Estimating ambiguity

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  • Marc Henry

    () (Columbia University - Department of Economics)

Abstract

We propose a measure of the degree of ambiguity associated with a belief function and a nonparametric method to estimate it. The degree of ambiguity associated with a belief function is measured by the Kullback-Leibler diameter of the set of probability measures compatible with it. It is shown that an estimator based on the empirical version of the unambiguous measure generating the belief function is consistent for the true value of the ambiguity measure. Applications to policy decision making under Knightian uncertainty are discussed.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 0102-21.

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Length: 11 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:clu:wpaper:0102-21

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  1. William A. Brock & Steven N.Durlauf, 2000. "Growth Economics and Reality," NBER Working Papers 8041, National Bureau of Economic Research, Inc.
  2. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
  3. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  4. Marinacci, Massimo, 1999. "Limit Laws for Non-additive Probabilities and Their Frequentist Interpretation," Journal of Economic Theory, Elsevier, vol. 84(2), pages 145-195, February.
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Cited by:
  1. Claude Henry & Marc Henry, 2002. "Formalization and applications of the precautionary principles," Discussion Papers 0102-22, Columbia University, Department of Economics.
  2. Claude HENRY & Marc HENRY, 2002. "Formalization and Applications of the Precuationary Principle," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002009, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  3. Stefania D'Amico, 2005. "Density selection and combination under model ambiguity: an application to stock returns," Finance and Economics Discussion Series 2005-09, Board of Governors of the Federal Reserve System (U.S.).
  4. Stefania D'Amico, 2004. "Density Estimation and Combination under Model Ambiguity," Computing in Economics and Finance 2004 273, Society for Computational Economics.

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