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IID: Independently and Indistinguishably Distributed

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Author Info

  • Larry Epstein

    ()
    (University of Rochester)

  • Martin Schneider

    ()
    (UCLA)

Abstract

The inability of the Bayesian model to accomodate Ellsberg-type behavior is well known. This paper focuses on another limitation of the Bayesian model, specific to a dynamic setting, namely the inability to permit a distinction between experiments that are identical and those that are only indistinguishable. It is shown that such a distinction is afforded by recursive multiple-priors utility. Two related technical contributions are the proff of a strong LLN for recursive multiple-priors utility and the extension to sets of priors of the notion of regularity of a probability measure.

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File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_496.pdf
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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 496.

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Length: 23 pages
Date of creation: Oct 2002
Date of revision:
Publication status: forthcoming in JET
Handle: RePEc:roc:rocher:496

Contact details of provider:
Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

Related research

Keywords: ambiguity; multiple-priors; Ellsberg Paradox; recursive utility; law of large numbers; independent experiments; exchangeable experiments;

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References

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  1. Ghirardato, Paolo, 1997. "On Independence for Non-Additive Measures, with a Fubini Theorem," Journal of Economic Theory, Elsevier, Elsevier, vol. 73(2), pages 261-291, April.
  2. Hendon, Ebbe & Jacobsen, Hans Jorgen & Sloth, Birgitte & Tranaes, Torben, 1996. "The product of capacities and belief functions," Mathematical Social Sciences, Elsevier, Elsevier, vol. 32(2), pages 95-108, October.
  3. Marinacci, Massimo, 1999. "Limit Laws for Non-additive Probabilities and Their Frequentist Interpretation," Journal of Economic Theory, Elsevier, Elsevier, vol. 84(2), pages 145-195, February.
  4. Sarin, Rakesh & Wakker, Peter P, 1998. "Dynamic Choice and NonExpected Utility," Journal of Risk and Uncertainty, Springer, Springer, vol. 17(2), pages 87-119, November.
  5. Epstein Larry G. & Wang Tan, 1995. "Uncertainty, Risk-Neutral Measures and Security Price Booms and Crashes," Journal of Economic Theory, Elsevier, Elsevier, vol. 67(1), pages 40-82, October.
  6. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, Econometric Society, vol. 57(3), pages 571-87, May.
  7. D. Blackwell & L. Dubins, 2010. "Merging of Opinions with Increasing Information," Levine's Working Paper Archive 565, David K. Levine.
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Citations

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Cited by:
  1. Larry Epstein & Martin Schneider, 2005. "Ambiguity, Information Quality and Asset Pricing," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 519, University of Rochester - Center for Economic Research (RCER).
  2. Larry Epstein & Martin Schneider, 2002. "Learning Under Ambiguity," RCER Working Papers, University of Rochester - Center for Economic Research (RCER) 497, University of Rochester - Center for Economic Research (RCER), revised Mar 2005.
  3. Frank Riedel & Linda Sass, 2014. "Ellsberg games," Theory and Decision, Springer, Springer, vol. 76(4), pages 469-509, April.
  4. Martin Schneider, 2010. "The Research Agenda: Martin Schneider on Multiple Priors Preferences and Financial Markets," EconomicDynamics Newsletter, Review of Economic Dynamics, Review of Economic Dynamics, vol. 11(2), April.
  5. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2012. "On the Smooth Ambiguity Model: A Reply," Econometrica, Econometric Society, Econometric Society, vol. 80(3), pages 1303-1321, 05.
  6. Daniele Pennesi, 2013. "Asset Prices in an Ambiguous Economy," Carlo Alberto Notebooks, Collegio Carlo Alberto 315, Collegio Carlo Alberto.
  7. Tatjana Chudjakow & Frank Riedel, 2013. "The best choice problem under ambiguity," Economic Theory, Springer, Springer, vol. 54(1), pages 77-97, September.
  8. Paul Viefers, 2012. "Should I Stay or Should I Go?: A Laboratory Analysis of Investment Opportunities under Ambiguity," Discussion Papers of DIW Berlin 1228, DIW Berlin, German Institute for Economic Research.

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