Uncertainty in Economic Theory

by Gilboa; Itzhak

• ISBN13: 9780415324946
• ISBN10: 0415324947
• Format: Hardcover
• Copyright: 2004-08-24
• Publisher: Routledge

Summary

Recent decades have witnessed developments in decision theory that propose an alternative to the accepted Bayesian view. According to this view, all uncertainty can be quantified by probability measures. This view has been criticized on empirical as well as conceptual grounds. David Schmeidler has offered an alternative way of thinking about decision under uncertainty, which has become popular in recent years. This book provides a review and an introduction to this new decision theory under uncertainty. The first part focuses on theory axiomatizations, the definition of uncertainty aversion, the issue of updating and independence, and so forth. The second part deals with applications to economic theory, game theory and finance. With a wide variety of contributions of the highest order, the book can be considered to be extremely authoritative. This is the first collection to include papers on this topic, and it can thus serve as an introduction to researchers who are new to the field or agraduate textbook. With this goal in mind, the book contains survey introductions that are aimed at a graduate level student, and help explain the main ideas, as well as put them in perspective.

Author Biography

Evan W. Anderson is Assistant Professor of Economics, University of North Carolina at Chapel Hill Elchanan Ben-Porath is Professor of Economics at the Hebrew University of Jerusalem Antoine Billot is Professor of Economics at the Universite de Paris II, Pantheon-Assas Alain Chateauneuf is Professor of Mathematics at the Universite de Paris I Pantheon-Sorbonne James Dow is Professor of Finance at London Business School Larry Epstein is the Elmer B. Milliman Professor of Economics at the University of Rochester Paolo Ghirardato is Associate Professor of Mathematical Economics at the Universita di Torino Itzhak Gilboa is Professor of Economics at Tel-Aviv University Joseph Greenberg is the Dow Professor of Political Economy at McGill University Lars Peter Hansen is the Homer J. Livingston Distinguished Service Professor at the University of Chicago Peter Klibanoff is Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management, Northwestern University Kin Chung Lo is Associate Professor of Economics at York University Massimo Marinacci is Professor of Applied Mathematics at the Universita di Torino, Italy Luigi Montrucchio is Professor of Economics at the Universita di Torino, Italy Sujoy Mukerji is a University Lecturer in Economic Theory at the University of Oxford and Fellow of University College Thomas Sargent is Professor of Economics at New York University and senior fellow at the Hoover Institution at Stanford Rakesh Sarin is Professor of Decisions, Operations, and Technology Management and the Paine Chair in Management at the Anderson School of Management at the University of California at Los Angeles David Schmeidler is Professor of Statistics and Management at Tel-Avivi University and Professor of Economics at Ohio State University Jean-Marc Tallon is Directeur de Recherche at CNRS and Universite Paris I Peter P. Wakker is Professor of Decision under Uncertainty at the University of Amsterdam Tan Wang is Associate Professor at the Sauder School of Business, University of British Columbia Sergio Ribeiro da Costa Werlang is Professor of Economics at the Getulio Vargas Foundation

Table of Contents

List of contributors	xii
Preface	xv
PART I Theory	1	(280)
1 Introduction	3	(17)
ITZHAK GILBOA
2 Preference axiomatizations for decision under uncertainty	20	(16)
PETER P. WAKKER
3 Defining ambiguity and ambiguity attitude	36	(10)
PAOLO GHIRARDATO
4 Introduction to the mathematics of amibiguity	46	(62)
MASSIMO MARINACCI AND LUIGI MONTRUCCHIO
5 Subjective probability and expected utility without additivity	108	(17)
DAVID SCHMEIDLER
6 Maxmin expected utility with non-unique prior	125	(11)
ITZHAK GILBOA AND DAVID SCHMEIDLER
7 A simple axiomatization of nonadditive expected utility	136	(19)
RAKESH SARIN AND PETER P. WAKKER
8 Updating ambiguous beliefs	155	(16)
ITZHAK GILBOA AND DAVID SCHMEIDLER
9 A definition of uncertainty aversion	171	(38)
LARRY G. EPSTEIN
10 Ambiguity made precise: a comparative foundation	209	(35)
PAOLO GHIRARDATO AND MASSIMO MARINACCI
11 Stochastically independent randomization and uncertainty aversion	244	(17)
PETER KLIBANOFF
12 Decomposition and representation of coalitional games	261	(20)
MASSIMO MARINACCI
PART II Applications	281	(260)
13 An overview of economic applications of David Schmeidler's models of decision making under uncertainty	283	(20)
SUJOY MUKERJI AND JEAN-MARC TALLON
14 Ambiguity aversion and incompleteness of contractual form	303	(33)
SUJOY MUKERJI
15 Ambiguity aversion and incompleteness of financial markets	336	(28)
SUJOY MUKERJI AND JEAN-MARC TALLON
16 A quartet of semigroups for model specification, robustness, prices of risk, and model detection	364	(55)
EVAN W. ANDERSON, LARS PETER HANSEN, AND THOMAS J. SARGENT
17 Uncertainty aversion, risk aversion, and the optimal choice of portfolio	419	(10)
JAMES DOW AND SÉRGIO RIBEIRO DA COSTA WERLANG
18 Intertemporal asset pricing under Knightian uncertainty	429	(43)
LARRY G. EPSTEIN AND TAN WANG
19 Sharing beliefs: between agreeing and disagreeing	472	(11)
ANTOINE BILLOT, ALAIN CHATEAUNEUF, ITZHAK GILBOA, AND JEAN-MARC TALLON
20 Equilibrium in beliefs under uncertainty	483	(39)
KIN CHUNG LO
21 The right to remain silent	522	(9)
JOSEPH GREENBERG
22 On the measurement of inequality under uncertainty	531	(10)
ELCHANAN BEN-PORATH, ITZHAK GILBOA, AND DAVID SCHMEIDLER
Index	541