Foundations of ambiguity and economic modeling
Are foundations of models of ambiguity-sensitive preferences too flawed to be usefully applied to economic models?� Al-Najjar and Weinstein (2009) say such is indeed the case.� In this paper, first, we point out that many of the key arguments by Al-Najjar and Weinstein do not apply to quite a few of the ambiguity preference models of more recent vintage, and therefore to that extent do not undermine the foundational aspects or applicability of ambiguity models in general.� Second, we argue the focus in that paper on Ellsberg examples is an overly narrow concern; the Ellsberg examples have their uses but they are not the best context to understand why reasonable real-world agents may find acting with ambiguity-sensitive preferences normatively or prescriptively appealing.� Finally, normative considerations aside, we submit that Al-Najjar and Weinstein are unduly dismissive of the power of such preferences to provide illuminating positive analyses of economic phenomena.
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