The paper derives the optimal carbon tax in closed-form from an integrated assessment of climate change. The formula shows how carbon, temperature, and economic dynamics quantify the optimal mitigation effort. The model's descriptive power is comparable to numeric models used in policy advising....

We provide an axiomatic approach to a belief formation process in an informational environment characterized by limited, heterogenous and differently precise information. For a list of previously observed cases an agent needs to express her belief by assigning probabilities to possible outcomes....

We study the influence of reason and intuition on decision making over time. Facing a sequence of similar problems, agents can either decide rationally according to expected utility theory or intuitively according to case-based decision theory. Rational decisions are more precise but create...

This paper considers learning when the distinction between risk and ambiguity (Knightian uncertainty) matters. Working within the framework of recursive multiple-priors utility, the paper formulates a counterpart of the Bayesian model of learning about an uncertain parameter from conditionally...

We study an investor's optimal consumption and portfolio choice problem when he confronts with two possibly misspecified submodels of stock returns: one with IID returns and the other with predictability. We adopt a generalized recursive ambiguity model to accommodate the investor's aversion to...

Recent research in neuroeconomics suggests that the same brain areas that generate emotional states are also involved in the processing of information about risk, rewards and punishments. These findings imply that emotions may influence financial decisions in a predictable and parsimonious way....

We study an investor's optimal consumption and portfolio choice problem when he confronts with two possibly misspecified submodels of stock returns: one with IID returns and the other with predictability. We adopt a generalized recursive ambiguity model to accommodate the investor's aversion to...

This paper considers learning when the distinction between risk and ambiguity matters. It first describes thought experiments, dynamic variants of those provided by Ellsberg, that highlight a sense in which the Bayesian learning model is extreme - it models agents who are implausibly ambitious...

The paper derives the optimal carbon tax in closed-form from an integrated assessment of climate change. The formula shows how carbon, temperature, and economic dynamics quantify the optimal mitigation effort. The model’s descriptive power is comparable to numeric models used in policy...

This paper offers an ambiguity-based interpretation of variance premium - the difference between risk-neutral and objective expectations of market return variance - as a compounding effect of both belief distortion and variance differential regarding the uncertain economic regimes. Our approach...