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Ambiguous Correlation

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  • Larry G Epstein
  • Yoram Halevy

Abstract

Many decisions are made in environments where outcomes are determined by the realization of multiple random events. A decision maker may be uncertain how these events are related. We identify and experimentally substantiate behaviour that intuitively reflects a lack of confidence in their joint distribution. Our findings suggest a dimension of ambiguity which is different from that in the classical distinction between risk and “Knightian uncertainty”.

Suggested Citation

  • Larry G Epstein & Yoram Halevy, 2019. "Ambiguous Correlation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(2), pages 668-693.
    • Handle: RePEc:oup:restud:v:86:y:2019:i:2:p:668-693.
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    File URL: http://hdl.handle.net/10.1093/restud/rdy008
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    References listed on IDEAS

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    More about this item

    Keywords

    Ambiguity; Confidence; Correlation neglect; Ellsberg Paradox; Preference elicitation;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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