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Model Uncertainty

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  • Massimo Marinacci

Abstract

We study decision problems in which consequences of the various alternative actions depend on states determined by a generative mechanism representing some natural or social phenomenon. Model uncertainty arises because decision makers may not know this mechanism. Two types of uncertainty result, a state uncertainty within models and a model uncertainty across them. We discuss some two-stage static decision criteria proposed in the literature that address state uncertainty in the first stage and model uncertainty in the second (by considering subjective probabilities over models). We consider two approaches to the Ellsberg-type phenomena characteristic of such decision problems: a Bayesian approach based on the distinction between subjective attitudes toward the two kinds of uncertainty; and a non-Bayesian approach that permits multiple subjective probabilities. Several applications are used to illustrate concepts as they are introduced.

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  • Massimo Marinacci, 2015. "Model Uncertainty," Journal of the European Economic Association, European Economic Association, vol. 13(6), pages 1022-1100, December.
  • Handle: RePEc:bla:jeurec:v:13:y:2015:i:6:p:1022-1100
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    File URL: http://hdl.handle.net/10.1111/jeea.12164
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    Cited by:

    1. Stergios Athanasoglou & Valentina Bosetti & Laurent Drouet, 2017. "A Simple Framework for Climate-Change Policy under Model Uncertainty," Working Papers 2017.13, Fondazione Eni Enrico Mattei.
    2. Battigalli, P. & Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M., 2016. "Analysis of information feedback and selfconfirming equilibrium," Journal of Mathematical Economics, Elsevier, vol. 66(C), pages 40-51.
    3. Loic Berger & Valentina Bosetti, 2016. "Ellsberg Re-revisited: An Experiment Disentangling Model Uncertainty and Risk Aversion," Working Papers 2016.37, Fondazione Eni Enrico Mattei.
    4. Astrid, Gamba & Tobias, Regner, 2015. "Preferences-dependent learning in the Centipede game," Working Papers 311, University of Milano-Bicocca, Department of Economics, revised 29 Oct 2015.
    5. Loic Berger & Massimo Marinacci, 2017. "Model Uncertainty in Climate Change Economics," Working Papers 616, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Simon Quemin, 2016. "Intertemporal abatement decisions under ambiguity aversion in a cap and trade," Working Papers 1604, Chaire Economie du climat.
    7. Loïc Berger & Johannes Emmerling, 2017. "Welfare as Simple(x) Equity Equivalents," Working Papers 2017.14, Fondazione Eni Enrico Mattei.
    8. Simone Cerreia Vioglio & Fabio Maccheroni & Massimo Marinacci, 2016. "Absolute and Relative Ambiguity Aversion: A Preferential Approach," Working Papers 578, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    9. repec:eee:ejores:v:264:y:2018:i:1:p:280-293 is not listed on IDEAS
    10. Pierpaolo Battigalli & Alejandro Francetich & Giacomo Lanzani & Massimo Marinacci, 2016. "Learning and Self-confi rming Long-Run Biases," Working Papers 588, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    11. Steel, Mark F. J., 2017. "Model Averaging and its Use in Economics," MPRA Paper 81568, University Library of Munich, Germany.
    12. Pierpaolo Battigalli & Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Thomas Sargent, 2016. "A Framework for the Analysis of Self-Confi rming Policies," Working Papers 573, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    13. Pierpaolo Battigalli & Emiliano Catonini & Giacomo Lanzani & Massimo Marinacci, 2017. "Ambiguity Attitudes and Self-Confi rming Equilibrium in Sequential Games," Working Papers 607, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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