This paper deals with bounded rationality as a way to describe behavior and focuses on the question of how to build such boundedly rational models. The first part is a discussion of the reasons why such models are needed and on the situations in which they can be regarded as more particularly...

The phenomena of ambiguity and ambiguity aversion , introduced in Daniel Ellsberg’s seminal 1961 article, are ubiquitous in the real world and violate both the key rationality axioms and classic models of choice under uncertainty. In particular, they violate the hypothesis that individuals’...

Detailed surveys examine risk and uncertainty, from classical and foundational work through current developments. Presents coherent summaries of risk and uncertainty that inform major areas in economics and finance

Detailed surveys examine risk and uncertainty, from classical and foundational work through current developments. Presents coherent summaries of risk and uncertainty that inform major areas in economics and finance

Ambiguous choice problems which involve three or more outcome values can reveal aspects of ambiguity and ambiguity aversion which cannot be displayed in the classic two-outcome Ellsberg urn problems, and hence are not always captured by models designed to accommodate them. These aspects include...

This paper extends the classic Rothschild-Stiglitz characterization of comparative risk (quot;increasing riskquot;) in two directions. By adopting a more general definition of quot;mean preserving spread,quot; it provides a direct construction of a sequence of MPS's linking any pair of...

Many standard structural models in economics have the property that they induce persistent, partially predictable heteroskedasticity ("volatility clustering") in their key dependent variables, even when their underlying stochastic shock variables are all serially independent and homoskedastic,...