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On the Smooth Ambiguity Model: A Reply

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  • Sujoy Mukerji
  • Peter Klibanoff

Abstract

Epstein (2009) describes three Ellsberg-style thought experiments and argues that they pose difficulties for the smooth ambiguity model of decision making under uncertainty developed by Klibanoff, Marinacci and Mukerji (2005).� We revisit these thought exeperiments and find, to the contrary, that they either point to strengths of the smooth ambiguity model compared to other models, such as the maximum expected utility model (Gilboa and Schmeidler, 1989), or, in the case of one thought experiment, raise criticisms that apply equally to a broad range of current ambiguity models.

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 449.

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Date of creation: 01 Sep 2009
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Handle: RePEc:oxf:wpaper:449

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Keywords: Ambiguity; Uncertainty; Knightian uncertainy; Ambiguity aversion; Uncertainty aversion; Ellsberg paradox; Ambiguity attitude;

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References

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  1. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Carlo Alberto Notebooks 12, Collegio Carlo Alberto, revised 2006.
  2. Amarante, Massimiliano, 2009. "Foundations of neo-Bayesian statistics," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2146-2173, September.
  3. Larry Epstein & Martin Schneider, 2002. "IID: Independently and Indistinguishably Distributed," RCER Working Papers 496, University of Rochester - Center for Economic Research (RCER).
  4. Marciano Siniscalchi, 2007. "Vector Expected Utility and Attitudes toward Variation," Discussion Papers 1455, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  6. Segal, Uzi & Spivak, Avia, 1990. "First order versus second order risk aversion," Journal of Economic Theory, Elsevier, vol. 51(1), pages 111-125, June.
  7. Robert F. Nau, 2006. "Uncertainty Aversion with Second-Order Utilities and Probabilities," Management Science, INFORMS, vol. 52(1), pages 136-145, January.
  8. William Neilson, 2010. "A simplified axiomatic approach to ambiguity aversion," Journal of Risk and Uncertainty, Springer, vol. 41(2), pages 113-124, October.
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Cited by:
  1. Attanasi, Giuseppe & Gollier, Christian & Montesano, Aldo & Pace, Noémie, 2012. "Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach," LERNA Working Papers 12.21.378, LERNA, University of Toulouse.
  2. Massimo Guidolin & Francesca Rinaldi, 2013. "Ambiguity in asset pricing and portfolio choice: a review of the literature," Theory and Decision, Springer, vol. 74(2), pages 183-217, February.
  3. Dominiak, Adam & Schnedler, Wendelin, 2010. "Attitudes towards Uncertainty and Randomization: An Experimental Study," Working Papers 0494, University of Heidelberg, Department of Economics.
  4. Giraud, Raphaël, 0. "Second order beliefs models of choice under imprecise risk: non-additive second order beliefs vs. nonlinear second order utility," Theoretical Economics, Econometric Society.
  5. Sujoy Mukerji & Robin Cubitt & Gijs van de Kuilen, 2014. "Discriminating between Models of Ambiguity Attitude: A Qualitative Test," Economics Series Working Papers 692, University of Oxford, Department of Economics.
  6. Robert Nau, 2011. "Risk, ambiguity, and state-preference theory," Economic Theory, Springer, vol. 48(2), pages 437-467, October.

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