Optimal investment and the ambiguous aggregation of expert opinions
How should a decision-maker assess the potential of an investment when a group of experts provides strongly divergent estimates on its expected payoff? To address this question, we propose and analyze a variant of the well-studied -maxmin model in decision theory. In our framework, and consistent to the paper's empirical focus on R&D investment, experts' subjective probability distributions are allowed to be action-dependent. In addition, the decision maker constrains the sets of priors to be considered in accordance with ethical considerations and/or operational protocols. Using tools from convex and conic optimization, we are able to establish a number of analytical results including a closed-form expression of our model's value function, a thorough investigation of its differentiability properties, and necessary conditions for optimal investment. We apply our framework to original data from a recent expert elicitation survey on solar technology. The analysis suggests that more aggressive investment in solar technology R&D is likely to yield significant dividends even, or rather especially, after taking ambiguity into account. Keywords: expert aggregation; ambiguity; -maxmin; second-order cone programming; renewable energy R&D
|Date of creation:||2012|
|Date of revision:|
|Contact details of provider:|| Postal: via Rontgen, 1 - 20136 Milano (Italy)|
Web page: http://www.igier.unibocconi.it/
|Order Information:|| Web: http://www.igier.unibocconi.it/en/papers/index.htm Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Chateauneuf, Alain & Eichberger, Jürgen & Grant, Simon, 2003.
"Choice under uncertainty with the best and worst in mind : neo-additive capacities,"
03-10, Sonderforschungsbreich 504.
- Chateauneuf, Alain & Eichberger, Jurgen & Grant, Simon, 2007. "Choice under uncertainty with the best and worst in mind: Neo-additive capacities," Journal of Economic Theory, Elsevier, vol. 137(1), pages 538-567, November.
- Grant, Simon & Chateauneuf, A. & Eichberger, J., 2002. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Working Papers 2002-10, Rice University, Department of Economics.
- Chateauneuf, Alain & Eichberger, Jürgen & Grant, Simon, 2003. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Sonderforschungsbereich 504 Publications 03-10, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Alain Chateauneuf & Jürgen Eichberger & Simon Grant, 2007. "Choice under uncertainty with the best and worst in mind: neo-additive capacities," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00271279, HAL.
- Jurgen Eichberger & Simon Grant & David Kelsey & Gleb A. Koshevoy, 2009. "The a-MEU Model: A Comment," Discussion Papers 0903, Exeter University, Department of Economics.
- Itzhak Gilboa & David Schmeidler, 1989.
"Maxmin Expected Utility with Non-Unique Prior,"
- Popp, David, 2004. "ENTICE: endogenous technological change in the DICE model of global warming," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 742-768, July.
- Wojciech Olszewski, 2007. "Preferences Over Sets of Lotteries -super-1," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 567-595.
When requesting a correction, please mention this item's handle: RePEc:igi:igierp:468. 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: ()
If references are entirely missing, you can add them using this form.