Arbeitspapier
First-order and second-order ambiguity aversion
Different models of uncertainty aversion imply strikingly different economic behavior. The key to understanding these differences lies in the dichotomy between first-order and second-order ambiguity aversion which I define here. My definition and its characterization are independent of specific representations of decisions under uncertainty. I show that with second-order ambiguity aversion a positive exposure to ambiguity is optimal if and only if there is a subjective belief such that the act´s expected outcome is positive. With first-order ambiguity aversion, zero exposure to ambiguity can be optimal. Examples in finance, insurance and contracting demonstrate the economic relevance of this dichotomy.
- Sprache
-
Englisch
- Erschienen in
-
Series: Preprints of the Max Planck Institute for Research on Collective Goods ; No. 2015/13
- Klassifikation
-
Wirtschaft
Asymmetric and Private Information; Mechanism Design
Microeconomic Behavior: Underlying Principles
Criteria for Decision-Making under Risk and Uncertainty
Portfolio Choice; Investment Decisions
- Thema
-
uncertainty aversion
ambiguity
smooth ambiguity aversion
sub-jective beliefs
kinked preferences
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Lang, Matthias
- Ereignis
-
Veröffentlichung
- (wer)
-
Max Planck Institute for Research on Collective Goods
- (wo)
-
Bonn
- (wann)
-
2015
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:41 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Lang, Matthias
- Max Planck Institute for Research on Collective Goods
Entstanden
- 2015
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