IDEAS home Printed from
   My bibliography  Save this article

Econometric applications of maxmin expected utility


  • Gary Chamberlain

    (Department of Economics, Harvard University, Cambridge, MA 02138, USA)


Gilboa and Schmeidler (1989) develop a set of axioms for decision making under uncertainty. The axioms imply a utility function and a set of distributions such that the preference ordering is obtained by calculating expected utility with respect to each distribution in the set, and then taking the minimum of expected utility over the set. In a portfolio choice problem, the distributions are joint distributions for the data that will be available when the choice is made and for the future returns that will determine the value of the portfolio. The set of distributions could be generated by combining a parametric model with a set of prior distributions. We apply this framework to obtain a preference ordering over decision rules, which map the data into a choice. We seek a decision rule that maximizes the minimum expected utility (or, equivalently, minimizes maximum risk) over the set of distributions. An algorithm is provided for the case of a finite set of distributions. It is based on solving a concave programme to find the least-favourable mixture of these distributions. The minimax rule is a Bayes rule with respect to this least-favourable distribution. The minimax value is a lower bound for minimax risk relative to a larger set of distributions. An upper bound can be found by fixing a decision rule and calculating its maximum risk. We apply the algorithm to an estimation problem in an autoregressive, random-effects model for panel data. Copyright © 2000 John Wiley & Sons, Ltd.

Suggested Citation

  • Gary Chamberlain, 2000. "Econometric applications of maxmin expected utility," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(6), pages 625-644.
  • Handle: RePEc:jae:japmet:v:15:y:2000:i:6:p:625-644

    Download full text from publisher

    File URL:
    File Function: Supporting data files and programs
    Download Restriction: no

    References listed on IDEAS

    1. Chamberlain, Gary, 2000. "Econometrics and decision theory," Journal of Econometrics, Elsevier, vol. 95(2), pages 255-283, April.
    2. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    3. Nicholas Barberis, 2000. "Investing for the Long Run when Returns Are Predictable," Journal of Finance, American Finance Association, vol. 55(1), pages 225-264, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Alexei Onatski & Noah Williams, 2003. "Modeling Model Uncertainty," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1087-1122, September.
    2. David K. Backus & Bryan R. Routledge & Stanley E. Zin, 2005. "Exotic Preferences for Macroeconomists," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 319-414 National Bureau of Economic Research, Inc.
    3. Levine, Paul & McAdam, Peter & Pearlman, Joseph, 2012. "Probability models and robust policy rules," European Economic Review, Elsevier, vol. 56(2), pages 246-262.
    4. Alan S. Blinder & Ricardo Reis, 2005. "Understanding the Greenspan standard," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 11-96.
    5. Lars P. Hansen & Thomas J. Sargent, 2016. "Sets of Models and Prices of Uncertainty," NBER Working Papers 22000, National Bureau of Economic Research, Inc.
    6. Adam, Klaus, 2004. "On the relation between robust and Bayesian decision making," Journal of Economic Dynamics and Control, Elsevier, vol. 28(10), pages 2105-2117, September.
    7. Gary Chamberlain, 2001. "Minimax Estimation and Forecasting in a Stationary Autoregression Model," American Economic Review, American Economic Association, vol. 91(2), pages 55-59, May.
    8. repec:pri:cepsud:114blinderreis is not listed on IDEAS
    9. Christopher A. Sims, 2001. "Pitfalls of a Minimax Approach to Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 51-54, May.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:15:y:2000:i:6:p:625-644. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.