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Foundations Of Ambiguity And Economic Modelling

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  • Mukerji, Sujoy

Abstract

Are foundations of models of ambiguity-sensitive preferences too flawed to be usefully applied to economic models? Al-Najjar and Weinstein (2009) say such is indeed the case. In this paper, first, we point out that many of the key arguments by Al-Najjar and Weinstein do not apply to quite a few of the ambiguity preference models of more recent vintage, and therefore to that extent do not undermine the foundational aspects or applicability of ambiguity models in general. Second, we argue the focus in that paper on Ellsberg examples is an overly narrow concern; the Ellsberg examples have their uses but they are not the best context to understand why reasonable real-world agents may find acting in an ambiguity-sensitive manner normatively or prescriptively appealing. Finally, normative considerations aside, we submit that Al-Najjar and Weinstein are unduly dismissive of the power of such preferences to provide illuminating positive analyses of economic phenomena.

Suggested Citation

  • Mukerji, Sujoy, 2009. "Foundations Of Ambiguity And Economic Modelling," Economics and Philosophy, Cambridge University Press, vol. 25(03), pages 297-302, November.
  • Handle: RePEc:cup:ecnphi:v:25:y:2009:i:03:p:297-302_99
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    References listed on IDEAS

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    1. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
    2. I. Gilboa & A. W. Postlewaite & D. Schmeidler., 2009. "Probability and Uncertainty in Economic Modeling," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 10.
    3. Sujoy Mukerji & Jean-Marc Tallon, 2003. "An overview of economic applications of David Schmeidler`s models of decision making under uncertainty," Economics Series Working Papers 165, University of Oxford, Department of Economics.
    4. Klibanoff, Peter & Marinacci, Massimo & Mukerji, Sujoy, 2009. "Recursive smooth ambiguity preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 930-976, May.
    5. Klibanoff, Peter & Hanany, Eran, 2007. "Updating preferences with multiple priors," Theoretical Economics, Econometric Society, vol. 2(3), September.
    6. Epstein, Larry G. & Schneider, Martin, 2003. "Recursive multiple-priors," Journal of Economic Theory, Elsevier, vol. 113(1), pages 1-31, November.
    7. Maccheroni, Fabio & Marinacci, Massimo & Rustichini, Aldo, 2006. "Dynamic variational preferences," Journal of Economic Theory, Elsevier, vol. 128(1), pages 4-44, May.
    8. Al-Najjar, Nabil I. & Weinstein, Jonathan, 2009. "The Ambiguity Aversion Literature: A Critical Assessment," Economics and Philosophy, Cambridge University Press, vol. 25(03), pages 249-284, November.
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    Cited by:

    1. 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.
    2. Loic Berger & Massimo Marinacci, 2017. "Model Uncertainty in Climate Change Economics," Working Papers 616, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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