This paper explores the problem of a social planner willing to improve the welfare of individuals who are unable to compare all available alternatives. The optimal decision trades off the individuals' desire for flexibility versus their aversion towards ambiguous choice situations. We introduce...

According to the risk-free rate puzzle the return on safe assets is much lower than predicted by standard representative agent models of consumption based asset pricing. Based on non-additive probability measures arising in Choquet decision theory we develop a closed-form model of Bayesian...

On average, "young" people underestimate whereas "old" people overestimate their chances to survive into the future. We adopt a Bayesian learning model of ambiguous survival beliefs which replicates these patterns. The model is embedded within a non-expected utility model of life-cycle...