This paper assesses the quantitative impact of ambiguity on the historically observed equity premium. We consider a Lucas-tree pure—exchange economy with a single agent where we introduce two key non-standard assumptions. First, the agent’s beliefs about the dividend/consumption process is ambiguous, i.e., she is uncertain about the exact probability distribution governing the realization of future dividends and consumption. Second, the agent’s preferences are sensitive to this ambiguity, a p...