Knightian decision theory and econometric inferences
An uncertainty averse Knightian decision maker has a set of probability distributions over outcomes and chooses something other than the status quo only if the change increases the expected payoff according to all the distributions. It is possible to define a standardized degree of uncertainty aversion. To each such degree, there corresponds a set of prior distributions over the parameters of a Gaussian linear regression model, these priors being centered on a uniform prior. The set of posterior means corresponding to this set of priors has the same properties as a standard confidence region.
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- Itzhak Gilboa & David Schmeidler, 1989.
"Maxmin Expected Utility with Non-Unique Prior,"
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