Ambiguity and Social Interaction

We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing) equilibrium prices under Cournot (Bertrand) competition. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements

Differentiating Ambiguity: A Comment.

In Ghirardato, Macheroni and MArcinaccri (GMM) propose a method for distinguishing between percieved ambiguity and the decision-maker's reaction to it. They study a general class of preferences which includes CEU and a-MEU and axiomatise a subclass of a-MEU preferences. We show that for Hurwicz preferences the proposed measure of ambiguity depends on parameters which intuitively reflect ambiguity-attitude. Furthermore, any a-MEU preferences which satisfy the CEU axioms, satisfy GMM's axioms if and only if a = 0 or 1, that is, the capacity must be convex or concave.Ambiguity, multiple priors, Hurwicz, Choquet expected utility.

Ambiguity, Infra-Marginal Investors, and Market Prices

It is difficult to explain the price insensitive or infra-marginal behavior, an example of which is the behavior of credit markets during the recent financial crisis, by risk aversion alone. It is known that infra-marginal behavior may arise with ambiguity aversion. Furthermore, there appears to be fairly strong evidence of a close connection between ambiguity and conformity. Here we propose an extension of the standard ambiguity framework to incorporate conformity. We find that there are open sets of state-price ratios over which the entire market is price insensitive or infra-marginal. This result has important implications for market equilibrium and volatilityAmbiguity, Infra-Marginal Behavior, Arrow Securities

Elicitation of ambiguous beliefs with mixing bets

I consider the elicitation of ambiguous beliefs about an event and show how to identify the interval of relevant probabilities (representing ambiguity perception) for several classes of ambiguity averse preferences. The agent reveals her preference for mixing binarized bets on the uncertain event and its complement under varying betting odds. Under ambiguity aversion, mixing is informative about the interval of beliefs. In particular, the mechanism allows to distinguish ambiguous beliefs from point beliefs, and identifies the belief interval for maxmin preferences. For ambiguity averse smooth second order and variational preferences, the mechanism reveals inner bounds for the belief interval, which are sharp under additional assumptions. In an experimental study, participants perceive almost as much ambiguity for natural events (generated by the stock exchange and by a prisoners dilemma game) as for the Ellsberg Urn, indicating that ambiguity may play a role in real-world decision making

The Value of a Statistical Life under Ambiguity Aversion

We show that ambiguity aversion increases the value of a statistical life as soon as the marginal utility of wealth is higher if alive than dead. The intuition is that ambiguity aversion has a similar effect as an increase in the perceived baseline mortality risk, and thus operates as the “dead anyway” effect. We suggest, however, that ambiguity aversion should usually have a modest effect on the prevention of ambiguous mortality risks within benefit-cost analysis, and can hardly justify the substantial “ambiguity premium” apparently embodied in environmental policy-making.ambiguity, value-of-a-statistical-life, uncertainty, risk-aversion, willingness-to-pay, benefit-cost analysis, environmental risk, health policy

Investment under ambiguity with the best and worst in mind

Recent literature on optimal investment has stressed the difference between the impact of risk and the impact of ambiguity - also called Knightian uncertainty - on investors' decisions. In this paper, we show that a decision maker's attitude towards ambiguity is similarly crucial for investment decisions. We capture the investor's individual ambiguity attitude by applying alpha-MEU preferences to a standard investment problem. We show that the presence of ambiguity often leads to an increase in the subjective project value, and entrepreneurs are more eager to invest. Thereby, our investment model helps to explain differences in investment behavior in situations which are objectively identical

Are beliefs a matter of taste? A case for Objective Imprecise Information

We argue, in the spirit of some of Jean-Yves Jaffray's work, that explicitly incorporating the information, however imprecise, available to the decision maker is relevant, feasible, and fruitful. In particular, we show that it can lead us to know whether the decision maker has wrong beliefs and whether it matters or not, that it makes it possible to better model and analyze how the decision maker takes into account new information, even when this information is not an event and finally that it is crucial when attempting to identify and measure the decision maker's attitude toward imprecise information.Decision under uncertainy;Objective Information;Belief Formation;Methodology of Decision Theory

The Effect of Role Ambiguity on Competitive State Anxiety

The purpose of this study was to examine the relationship between role ambiguity and precompetition state anxiety (A-state). Consistent with multidimensional anxiety theory (Martens, Vealey, & Burton, 1990), it was hypothesized that role ambiguity would be positively related to cognitive but not to somatic A-state. Based on the conceptual model presented by Beauchamp, Bray, Eys, and Carron (2002), role ambiguity in sport was operationalized as a multidimensional construct (i.e., scope of responsibilities, role behaviors, role evaluation, and role consequences) potentially manifested in each of two contexts, offense and defense. Consistent with hypotheses, ambiguity in terms of the scope of offensive role responsibilities predicted cognitive A-state (R2 = .19). However, contrary to hypotheses, offensive role-consequences ambiguity also predicted somatic A-state (R2 = .09). Results highlight the importance of using a multidimensional approach to investigate role ambiguity in sport and are discussed in terms of both theory advancement and possible interventions