We combine new developments in decision theory with a standard consumption-based asset-pricing framework. In our model the efficient market hypothesis is violated if and only if agents’ beliefs express ambiguity about the stochastic process driving economic fundamentals. Asset price...

The results of a new experiment show that the Allais paradox (or, more generally, the common consequence effect) gets reversed, i.e. fanning-in choice patterns significantly outnumber fanning-out choice patterns. Revealed indifference curves fan in along the horizontal axis and hypotenuse of the...

The utility of an investor should be based on an acceptable loss in the loss region and a target return in the gain region of a set of investment opportunities. The level of these benchmarks will unveil an opportunity cost, break-even effect, or indifference when the return of an investment...

We investigate an extension of Dekel, Ely and Yilankaya's (2004) treatment of the evolution of preference to more general, possibly non-expected utility preferences. Along the lines of their analysis we consider a population of types that is repeatedly and randomly matched to play the mixed...