We offer a theory of polarization as an optimal response to ambiguity. Suppose individual A's beliefs first-order stochastically dominate individual B's. They observe a common signal. They exhibit polarization if A's posterior dominates her prior and B's prior dominates her posterior. Given...

Subjective uncertainty is characterized by ambiguity if the decisionmaker has an imprecise knowledge of the probabilities of payoff-relevant events. In such an instance, subjective beliefs are better represented by a set of probability functions than by a unique probability function. An...

We analyze a notion of self-confirming equilibrium with non-neutral ambiguity attitudes that generalizes the traditional concept. We show that the set of equilibria expands as ambiguity aversion increases. The intuition is quite simple: by playing the same strategy in a stationary environment,...