Recursive smooth ambiguity preferences

Peter Klibanoff, Massimo Marinacci*, Sujoy Mukerji

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

122 Scopus citations

Abstract

This paper axiomatizes an intertemporal version of the Smooth Ambiguity decision model developed in [P. Klibanoff, M. Marinacci, S. Mukerji, A smooth model of decision making under ambiguity, Econometrica 73 (6) (2005) 1849-1892]. A key feature of the model is that it achieves a separation between ambiguity, identified as a characteristic of the decision maker's subjective beliefs, and ambiguity attitude, a characteristic of the decision maker's tastes. In applications one may thus specify/vary these two characteristics independent of each other, thereby facilitating richer comparative statics and modeling flexibility than possible under other models which accommodate ambiguity sensitive preferences. Another key feature is that the preferences are dynamically consistent and have a recursive representation. Therefore techniques of dynamic programming can be applied when using this model.

Original languageEnglish (US)
Pages (from-to)930-976
Number of pages47
JournalJournal of Economic Theory
Volume144
Issue number3
DOIs
StatePublished - May 2009

Keywords

  • Ambiguity
  • Ambiguity aversion
  • Dynamic decision making
  • Dynamic programming under ambiguity
  • Ellsberg paradox
  • Knightian uncertainty
  • Smooth ambiguity
  • Uncertainty
  • Uncertainty aversion

ASJC Scopus subject areas

  • Economics and Econometrics

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