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Intertemporal Equilibria with Knightian Uncertainty

  • Riedel, Frank
  • Dana, Rose-Anne

We study a dynamic and in nite{dimensional model with Knightian uncertainty modeled by incomplete multiple prior preferences. In in- terior e cient allocations, agents share a common risk{adjusted prior and use the same subjective interest rate. Interior e cient alloca- tions and equilibria coincide with those of economies with subjective expected utility and priors from the agents' multiple prior sets. We show that the set of equilibria with inertia contains the equilibria of the economy with variational preferences anchored at the initial endowments. A case study in an economy without aggregate uncer- tainty shows that risk is fully insured, while uncertainty can remain fully uninsured. Pessimistic agents with Gilboa{Schmeidler's max-min preferences would fully insure risk and uncertainty.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/5375.

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Date of creation: Jun 2010
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Handle: RePEc:dau:papers:123456789/5375
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  1. repec:hal:journl:halshs-00451997 is not listed on IDEAS
  2. Efe A. Ok & Pietro Ortoleva & Gil Riella, 2012. "Incomplete Preferences Under Uncertainty: Indecisiveness in Beliefs versus Tastes," Econometrica, Econometric Society, vol. 80(4), pages 1791-1808, 07.
  3. Larry G. Epstein & Martin Schneider, 2001. "Recursive Multiple-Priors," RCER Working Papers 485, University of Rochester - Center for Economic Research (RCER).
  4. Zengjing Chen & Larry G. Epstein, 2000. "Ambiguity, risk and asset returns in continuous time," RCER Working Papers 474, University of Rochester - Center for Economic Research (RCER).
  5. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Carlo Alberto Notebooks 12, Collegio Carlo Alberto, revised 2006.
  6. Antoine Billot & Alain Chateauneuf & Itzhak Gilboa & Jean-Marc Tallon, 2000. "Sharing beliefs: between agreeing and disagreeing," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00174553, HAL.
  7. Itzhak Gilboa & Fabio Maccheroni & Massimo Marinacci & David Schmeidler, 2010. "Objective and Subjective Rationality in a Multiple Prior Model," Econometrica, Econometric Society, vol. 78(2), pages 755-770, 03.
  8. Faro, José Heleno, 2015. "Variational Bewley preferences," Journal of Economic Theory, Elsevier, vol. 157(C), pages 699-729.
  9. Sagi, Jacob S., 2006. "Anchored preference relations," Journal of Economic Theory, Elsevier, vol. 130(1), pages 283-295, September.
  10. Rigotti, Luca & Shannon, Chris, 2001. "Uncertainty and Risk in Financial Markets," Department of Economics, Working Paper Series qt7pp7113z, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  11. Easley, David & O'Hara, Maureen, 2010. "Liquidity and valuation in an uncertain world," Journal of Financial Economics, Elsevier, vol. 97(1), pages 1-11, July.
  12. Itzhak Gilboa & David Schmeidler, 1989. "Maxmin Expected Utility with Non-Unique Prior," Post-Print hal-00753237, HAL.
  13. repec:hal:journl:halshs-00174553 is not listed on IDEAS
  14. Chateauneuf, Alain & Dana, Rose-Anne & Tallon, Jean-Marc, 2000. "Optimal risk-sharing rules and equilibria with Choquet-expected-utility," Journal of Mathematical Economics, Elsevier, vol. 34(2), pages 191-214, October.
  15. Shannon, Chris & Strzalecki, Tomasz & Rigotti, Luca, 2008. "Subjective Beliefs and Ex Ante Trade," Scholarly Articles 3637104, Harvard University Department of Economics.
  16. Epstein, Larry G. & Marinacci, Massimo, 2007. "Mutual absolute continuity of multiple priors," Journal of Economic Theory, Elsevier, vol. 137(1), pages 716-720, November.
  17. Leandro Nascimento & Gil Riella, 2009. "A Class of Incomplete and Ambiguity Averse Preferences," Working Papers Series 180, Central Bank of Brazil, Research Department.
  18. Nehring, Klaus, 2009. "Imprecise probabilistic beliefs as a context for decision-making under ambiguity," Journal of Economic Theory, Elsevier, vol. 144(3), pages 1054-1091, May.
  19. Bewley, Truman F., 1972. "Existence of equilibria in economies with infinitely many commodities," Journal of Economic Theory, Elsevier, vol. 4(3), pages 514-540, June.
  20. Frank Riedel, 2009. "Optimal Stopping With Multiple Priors," Econometrica, Econometric Society, vol. 77(3), pages 857-908, 05.
  21. Dana, Rose-Anne, 2002. "On Equilibria when Agents Have Multiple Priors," Economics Papers from University Paris Dauphine 123456789/5456, Paris Dauphine University.
  22. Gale, D. & Mas-Colell, A., 1975. "An equilibrium existence theorem for a general model without ordered preferences," Journal of Mathematical Economics, Elsevier, vol. 2(1), pages 9-15, March.
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