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Ambiguous Correlation

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  • Epstein, Larry G.
  • Halevy, Yoram

Abstract

Many decisions are made in environments where outcomes are determined by the realization of multiple random events. A decision maker may be uncertain how these events are related. We identify and experimentally substantiate behavior that intuitively reflects a lack of confidence in their joint distribution. Our findings suggest a dimension of ambiguity which is different from that in the classical distinction between risk and "Knightian uncertainty."

Suggested Citation

  • Epstein, Larry G. & Halevy, Yoram, 2017. "Ambiguous Correlation," Microeconomics.ca working papers yoram_halevy-2017-2, Vancouver School of Economics, revised 09 Jan 2018.
  • Handle: RePEc:ubc:pmicro:yoram_halevy-2017-2
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    File URL: http://faculty.arts.ubc.ca/yhalevy/correlation.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

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    3. Bingyan Han & Chi Seng Pun & Hoi Ying Wong, 2021. "Robust state-dependent mean–variance portfolio selection: a closed-loop approach," Finance and Stochastics, Springer, vol. 25(3), pages 529-561, July.
    4. Cason, Timothy N. & Sharma, Tridib & Vadovič, Radovan, 2020. "Correlated beliefs: Predicting outcomes in 2 × 2 games," Games and Economic Behavior, Elsevier, vol. 122(C), pages 256-276.
    5. Timothy N. Cason & Tridib Sharma & Radovan Vadovic, 2019. "Corelated beliefs: Predicting outcomes in 2X2 games," Purdue University Economics Working Papers 1321, Purdue University, Department of Economics.
    6. Calford, Evan M., 2020. "Uncertainty aversion in game theory: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 720-734.
    7. Masaki Aoyagi & Takehito Masuda & Naoko Nishimura, 2021. "Strategic Uncertainty and Probabilistic Sophistication," ISER Discussion Paper 1117, Institute of Social and Economic Research, Osaka University.
    8. Ilke Aydogan & Loic Berger & Valentina Bosetti & Ning Liu, 2018. "Three layers of uncertainty: an experiment," Working Papers 623, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    9. Sautua, Santiago I., 2020. "When diversification clashes with the reinforcement heuristic: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 196-211.
    10. Henrique de Oliveira & Yuhta Ishii & Xiao Lin, 2021. "Robust Merging of Information," Papers 2106.00088, arXiv.org.

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    More about this item

    Keywords

    ambiguity; uncertainty; correlation; Ellsberg;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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