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Ambiguity and the Value of Late Resolution of Uncertainty

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  • Asen Kochov

Abstract

The paper shows that in a dynamic setting with multiple sources of uncertainty, recursive ambiguity-averse preferences may imply a preference for late resolution of uncertainty. In particular, the simultaneous resolution of two sources can offer hedging benefits that are negated when one source is resolved earlier and uncertainty is evaluated recursively. The paper illustrates the mechanism in a simple dynamic urn problem. In a special case, an equivalent static formulation involving composite bets on two urns suggests a direct experimental test.

Suggested Citation

  • Asen Kochov, 2026. "Ambiguity and the Value of Late Resolution of Uncertainty," CESifo Working Paper Series 12804, CESifo.
    • Handle: RePEc:ces:ceswps:_12804
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    References listed on IDEAS

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    1. Larry G. Epstein & Emmanuel Farhi & Tomasz Strzalecki, 2014. "How Much Would You Pay to Resolve Long-Run Risk?," American Economic Review, American Economic Association, vol. 104(9), pages 2680-2697, September.
    2. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
    3. 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.
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    JEL classification:

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

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