Sharing model uncertainty
Sharing model uncertainty
This paper examines efficient allocations in economies where consumers exhibit heterogeneous smooth ambiguity preferences and face model uncertainty with a common set of identifiable models. Aggregate endowment is ambiguous. We characterize economies where the representative consumer is of the smooth ambiguity type and derive efficient sharing rules. Heterogeneous ambiguity aversion leads to sharing rules that systematically differ from those in vNM-economies. The representative consumer's ambiguity aversion differs from that of the typical consumer; this leads to more compelling asset-pricing predictions. We focus on point-identified models but show that our insights extend to partially-identified models.
330, Ambiguity aversion, JEL: D - Microeconomics/D.D5 - General Equilibrium and Disequilibrium/D.D5.D53 - Financial Markets, Pricing kernel, ambiguity sharing, and Uncertainty/D.D8.D81 - Criteria for Decision-Making under Risk and Uncertainty, D50, Linear risk tolerance, linear risk tolerance, model uncertainty, Identifiability, [SHS.ECO] Humanities and Social Sciences/Economics and Finance, D53, ambiguity aversion, pricing kernel, ddc:330, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, identifiability, JEL: D - Microeconomics/D.D8 - Information, Ambiguity sharing, D81, Knowledge, D61, Model uncertainty, JEL: D - Microeconomics/D.D6 - Welfare Economics/D.D6.D61 - Allocative Efficiency • Cost–Benefit Analysis, JEL: D - Microeconomics/D.D5 - General Equilibrium and Disequilibrium/D.D5.D50 - General
330, Ambiguity aversion, JEL: D - Microeconomics/D.D5 - General Equilibrium and Disequilibrium/D.D5.D53 - Financial Markets, Pricing kernel, ambiguity sharing, and Uncertainty/D.D8.D81 - Criteria for Decision-Making under Risk and Uncertainty, D50, Linear risk tolerance, linear risk tolerance, model uncertainty, Identifiability, [SHS.ECO] Humanities and Social Sciences/Economics and Finance, D53, ambiguity aversion, pricing kernel, ddc:330, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, identifiability, JEL: D - Microeconomics/D.D8 - Information, Ambiguity sharing, D81, Knowledge, D61, Model uncertainty, JEL: D - Microeconomics/D.D6 - Welfare Economics/D.D6.D61 - Allocative Efficiency • Cost–Benefit Analysis, JEL: D - Microeconomics/D.D5 - General Equilibrium and Disequilibrium/D.D5.D50 - General
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