FIRST INTERNATIONAL SYMPOSIUM ON
IMPRECISE PROBABILITIES AND THEIR APPLICATIONS

Ghent, Belgium
30 June - 2 July 1999

ELECTRONIC PROCEEDINGS

Sujoy Mukerji

A survey of some applications of the idea of ambiguity aversion in economics

Abstract

Subjective uncertainty is characterized by ambiguity if the decision maker has an imprecise knowledge of the probabilities of payoff relevant events. In such an instance, the decision maker's beliefs are better represented by a set of probability functions than by a unique probability function. An ambiguity averse decision maker adjusts his choice on the side of caution in response to his imprecise knowledge of the odds. This paper attempts a (selective) survey of some of the achievements of the research program which has analyzed important economic phenomena using a methodology that departs from the standard paradigm by explicitly allowing for ambiguity aversion. We specifically look at applications, and implications, of ambiguity aversion in four areas: design of bilateral economic contracts, the trade in financial contracts and financial markets, strategic decision making and finally, the political economy of voting.

Keywords. ambiguity aversion, uncertainty, Knightian uncertainty, non-additive probabilities, capacities, Choquet expectation, economic contracts, financial markets, voting, auctions, public goods.

The paper is available in the following formats and sites:

Authors addresses:

Mukerji, Sujoy
Department of Economics
University of Southampton
Highfield
Southampton SO17 1BJ

E-mail addresses:

Sujoy Mukerji sm5@soton.ac.uk

Related Web Sites

Sujoy Mukerji


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