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Temporal Resolution of Uncertainty and Recursive Models of Ambiguity Aversion
Author(s) -
Strzalecki Tomasz
Publication year - 2013
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta9619
Subject(s) - ambiguity aversion , ambiguity , preference , economics , econometrics , set (abstract data type) , risk aversion (psychology) , mathematical economics , expected utility hypothesis , resolution (logic) , ambiguity resolution , subjective expected utility , domain (mathematical analysis) , mathematics , computer science , microeconomics , artificial intelligence , telecommunications , gnss applications , global positioning system , programming language , mathematical analysis
Dynamic models of ambiguity aversion are increasingly popular in applied work. This paper shows that there is a strong interdependence in such models between the ambiguity attitude and the preference for the timing of the resolution of uncertainty, as defined by the classic work of Kreps and Porteus (1978). The modeling choices made in the domain of ambiguity aversion influence the set of modeling choices available in the domain of timing attitudes. The main result is that the only model of ambiguity aversion that exhibits indifference to timing is the maxmin expected utility of Gilboa and Schmeidler (1989). This paper examines the structure of the timing nonindifference implied by the other commonly used models of ambiguity aversion. This paper also characterizes the indifference to long‐run risk, a notion introduced by Duffie and Epstein (1992). The interdependence of ambiguity and timing that this paper identifies is of interest both conceptually and practically—especially for economists using these models in applications.