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Three Layers of Uncertainty

Author

Listed:
  • Ilke Aydogan

    (IÉSEG School Of Management [Puteaux])

  • Loïc Berger

    (CNRS - Centre National de la Recherche Scientifique, IÉSEG School Of Management [Puteaux], EIEE - European Institute on Economics and the Environment, CMCC - Centro Euro-Mediterraneo per i Cambiamenti Climatici [Bologna])

  • Valentina Bosetti

    (Bocconi University [Milan, Italy], EIEE - European Institute on Economics and the Environment, CMCC - Centro Euro-Mediterraneo per i Cambiamenti Climatici [Bologna])

  • Ning Liu

    (BUAA - Beihang University)

Abstract

We explore decision-making under uncertainty using a framework that decomposes uncertainty into three distinct layers: (1) risk, which entails inherent randomness within a given probability model; (2) model ambiguity, which entails uncertainty about the probability model to be used; and (3) model misspecification, which entails uncertainty about the presence of the correct probability model among the set of models considered. Using a new experimental design, we isolate and measure attitudes toward each layer separately. We conduct our experiment on three different subject pools and document, the existence of a behavioral distinction between the three layers. In addition to

Suggested Citation

  • Ilke Aydogan & Loïc Berger & Valentina Bosetti & Ning Liu, 2023. "Three Layers of Uncertainty," Post-Print hal-04370968, HAL.
    • Handle: RePEc:hal:journl:hal-04370968
    DOI: 10.1093/jeea/jvad008
    Note: View the original document on HAL open archive server: https://hal.science/hal-04370968
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    References listed on IDEAS

    as
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