We analyze a market populated by expected utility maximizers and
smooth ambiguity-averse consumers. We study conditions under which
ambiguity-averse consumers survive and a¤ect prices in the limit. If
ambiguity vanishes with time or if the economy exhibits no aggregate
risk, ambiguity-averse consumers survive, but have no long-run impact on
prices. In both scenarios, ambiguity-averse consumers are fully insured
against ambiguity in equilibrium and, thus, behave as expected utility
maximizers with correct beliefs. If ambiguity-averse consumers are not
fully insured against ambiguity, they behave as expected utility maximiz-
ers with e¤ectively wrong beliefs and an e¤ective discount factor which
might be higher or lower than their actual discount factor. Using this in-
sight, we demonstrate that consumers with constant absolute ambiguity
aversion vanish in expectations, whenever the economy faces aggregate
risk. In contrast, consumers with constant relative (and thus, decreas-
ing absolute) ambiguity aversion survive in expectation and with positive
probability and have a non-trivial impact on prices in the limit
