We study the problem of elicitation of subjective beliefs of an agent when the beliefs are ambiguous (the set of beliefs is a non-singleton set) and the agent's preference exhibits ambiguity aversion; in particular, as represented by alpha-maxmin preferences. We construct a direct revelation...

We study effects of correlation ambiguity on portfolio choice when the number of risky assets is large. We find that the optimal portfolio contains only a fraction of available risky assets. With 100 stocks randomly selected from the S&P 500, less than 20 stocks will be held in the optimal...

Most portfolio selection rules based on the sample mean and covariance matrix perform poorly out-of-sample. Moreover, there is a growing body of evidence that such optimization rules are not able to beat simple rules of thumb, such as 1/N. Parameter uncertainty has been identified as one major...

We consider the aggregation of individual agents' von Neumann-Morgenstern preferences over lotteries into a social planner's von Neumann-Morgenstern preference. We start from Harsanyi's axiomatization of utilitarianism, and ask under which conditions a social preference order that satisfies...

Nearly all life-cycle models adopt Yaari's (1965) assumption that individuals know the survival probabilities that they face. Given that an individual's exact survival probabilities are likely unknown, we explore the implications of relaxing this assumption. If there is no annuity market, then...

We build a satisficing model of probabilistic choice under risk which embeds Expected Utility Theory (EUT) into a boundedly rational deliberation process. The decision maker accumulates evidence for and against alternative options by repeatedly sampling from her underlying set of EU preferences...

Two well-known violations of Expected Utility Theory (EUT) are the Allais Paradox and the preference reversal between gamble choices and gamble bids. The Allais Paradox undermines the independence axiom, according to which the preferences for two gambles should be unaffected by an independent...

Means-tested pension policies are typical for many countries and are very important to the pension system. These policies are specific for each country, and the assessment of policy changes is critical for policy makers. In this paper we consider the Australian means-tested Age Pension. The...