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Ambiguity Aversion and Incompleteness of Financial Markets.

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. The non-additive expected utility model allows a formal characterization...

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Volume:
46
Series:
Discussion paper series
Publication date:
2000-01-01
URN:
uuid:1c2f29dd-3fc1-4e87-a58b-d03753594f92
Local pid:
oai:economics.ouls.ox.ac.uk:13434
Language:
English

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