It is widely thought that incomes risks can be shared by trading in financial assets. But financial assets typically carry some risk idiosyncratic to them, hence, disposing incomes risk using financial assets will involve buying into the inherent idiosyncratic risk. However, standard theory...

If agent`s (subjective) beliefs are ambiguous then the beliefs may not be represented by a unique probability distribution in the standard Bayesian fashion but instead by a set of probabilities. Roughly put, an ambiguity averse decision maker evaluates an act by the minimum expected value that...

We define a behavioral concept of relevance in the context of decision making under uncertainty.  We argue that this concept provides a sensible answer to the question "What probabilistic environments do an individuals' preferences reveal as mattering to her decisions?" under a symmetry...

Epstein (2009) describes three Ellsberg-style thought experiments and argues that they pose difficulties for the smooth ambiguity model of decision making under uncertainty developed by Klibanoff, Marinacci and Mukerji (2005).  We revisit these thought exeperiments and find, to the contrary,...

Are foundations of models of ambiguity-sensitive preferences too flawed to be usefully applied to economic models?  Al-Najjar and Weinstein (2009) say such is indeed the case.  In this paper, first, we point out that many of the key arguments by Al-Najjar and Weinstein do not apply to quite a...

We propose and axiomatize a model of preferences over acts such that the decision maker evaluates acts according to the expectation (over a set of probability measures) of an increasing transformation of an act`s expected utility. This expectation is calculated using a subjective probability...

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 provides a positive theory about the contractual form of procurement contracts under cost uncertainty. However, while the cost of manufacture is uncertain it can be reduced by an amount depending on the extent of effort exerted by the agent. The effort exerted by the agent is not...

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...