This chapter of a collective book aims at presenting the basics of decision making under risk. We first define notions of risk and increasing risk and recall definitions and classifications (that are valid independently of any representation) of behavior under risk. We then review the classical...

We report in this paper the result of three experiments on risk, ambiguity and time attitude. The first two differed by the population considered (students vs general population) while the third one used a different protocol and concerned students and portfolio managers. We find quite a lot of...

This paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are, instead, ambiguity (or uncertainty) averse decision makers who maximize Choquet expected utility. We show that such agents will choose not to include any indexation coverage in...

This paper surveys some economic applications of the decision theoretic framework pioneered by David Schmeidler. We have organized the discussion around three themes: financial markets, contractual arrangements and game theory. The first section discusses papers that have contributed to a better...

Results in this note relate the observation of an interval of prices at which a DM strictly prefers to hold a zero position on an asset (termed `bid-ask behavior`) to the DM`s perception of the underlying payoff relevant events as ambiguous, as the term is defined in Epstein and Zhang (2001)....

This paper studies the properties of a general equilibrium model with purely microeconomic risk, in which agents behave according to Choquet expected utility (i.e., they maximize a non-additive expected utility). This formalization represents a behavior exhibiting uncertainty aversion or...

We address the issue of the representation as well as the evolution of (possibly) mistaken beliefs. We develop a formal setup (a mutual belief space) in which agents might have a mistaken view of what the model is. We then model a communication process, by which agents communicate their beliefs...

Following the seminal works of Schmeidler (1989), Gilboa and Schmeidler (1989), roughly put, an agent’s subjective beliefs are said to be ambiguous if the beliefs may not be represented by a unique probability distribution, in the standard Bayesian fashion, but instead by a set of...

We construct a simple trading process that is based on the maximization, at each stage, of the total distributable surplus. We show that this process converges to a Pareto optimal allocation.

In a multiple priors model á la Gilboa and Schmeidler (1989), we provide necessary and sufficient behavioral conditions ensuring the countable additivity and non-atomicity of all priors. Copyright Springer-Verlag Berlin/Heidelberg 2005