Markets often experience liquidity deteriorations during financial crisis and improvements during reforms in trading rules. To explain these phenomena, we present a price formation model in which market makers are subject to ambiguity. When the market maker is sufficiently ambiguity averse, the...

This paper discusses the efficient market hypothesis and behavioral finance under a general framework using the literature of decision theories and information sciences. The focus is centered on the broad de nition of subjective rationality, the imprecision, and reliability of information. The...