In the wake of financial crises and periods of high volatility, economists have struggled to fully explain persistent asset price misalignments and growing wealth inequality using traditional models ...

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those ...

Ambiguity aversion – the tendency to avoid options with uncertain probability distributions – has emerged as a central concept in understanding investor behaviour and decision making in financial ...

Experiments on first-price sealed-bid auctions with independent private values have shown that submitted bids typically exceed Nash-equilibrium predictions for risk-neutral bidders. Existing bidding ...

This paper studies a principal–agent model in which the information on future firm performance is ambiguous and the agent is averse to ambiguity. We show that if firm risk is ambiguous, while stocks ...

Buckholtz, Joshua W., Uma R. Karmarkar, Shengxuan Ye, Grace M. Brennan, and Arielle Baskin-Sommers. "Blunted Ambiguity Aversion During Cost-Benefit Decisions in ...

A new climate-economy model reported in Risk Sciences examines how ambiguity about key climate and economic factors shapes carbon abatement decisions. The study focuses on three sources of ...

Maximum-likelihood updating (MLU) is a well-known approach for extending static ambiguity sensitive preferences to dynamic set-ups. This paper develops an example in which MLU induces an ambiguity ...

This was first pointed out in 1961 by Daniel Ellsberg, who would go on to achieve fame for leaking the Pentagon Papers during the Vietnam war. He gave colleagues a choice of two bets. In one, they ...