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Temporal Resolution of Uncertainty and Recursive Models of Ambiguity Aversion

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  • Tomasz Strzalecki

Abstract

Models of ambiguity aversion have recently found many applications in dynamic settings. This paper shows that there is a strong interdependence between ambiguity aversion and the preferences for the timing of the resolution of uncertainty, as de ned by the classic work of Kreps and Porteus (1978): the modeling choices that are being made in the domain of ambiguity aversion influence the set of modeling choices available in the domain of timing attitudes. The main result of the paper is that the only model of ambiguity aversion that exhibits indi erence to timing is the maxmin expected utility of Gilboa and Schmeidler (1989). This paper also examines the structure of the timing nonindi erence implied by the other commonly used models of ambiguity aversion. The interdependence of ambiguity and timing that this paper identi es is of interest both conceptually and practically–especially for economists using these models in applications.

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Paper provided by Harvard University OpenScholar in its series Working Paper with number 8240.

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Handle: RePEc:qsh:wpaper:8240

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Cited by:
  1. Jianjun Miao & NENGJIU JU, 2010. "Ambiguity, Learning, And Asset Returns," Boston University - Department of Economics - Working Papers Series, Boston University - Department of Economics WP2010-031, Boston University - Department of Economics.
  2. Daniele Pennesi, 2013. "Asset Prices in an Ambiguous Economy," Carlo Alberto Notebooks, Collegio Carlo Alberto 315, Collegio Carlo Alberto.
  3. Gumen, Anna & Savochkin, Andrei, 2013. "Dynamically stable preferences," Journal of Economic Theory, Elsevier, Elsevier, vol. 148(4), pages 1487-1508.
  4. Sujoy Mukerji & Kevin Sheppard & Fabrice Collard and Jean-Marc Tallon, 2011. "Ambiguity and the historical equity premium," Economics Series Working Papers, University of Oxford, Department of Economics 550, University of Oxford, Department of Economics.
  5. Pierpaolo Benigno & Salvatore Nistic�, 2012. "International Portfolio Allocation under Model Uncertainty," American Economic Journal: Macroeconomics, American Economic Association, American Economic Association, vol. 4(1), pages 144-89, January.
  6. Sarver, Todd & Ergin, Haluk, 0. "Hidden actions and preferences for timing of resolution of uncertainty," Theoretical Economics, Econometric Society, Econometric Society.
  7. Bergeron, Claude, 2013. "Dividend sensitivity to economic factors, stock valuation, and long-run risk," Finance Research Letters, Elsevier, Elsevier, vol. 10(4), pages 184-195.

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