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On the Smooth Ambiguity Model: A Reply

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  • Peter Klibanoff
  • Massimo Marinacci
  • Sujoy Mukerji

Abstract

We find that Epstein (2010)'s Ellsberg-style thought experiments pose, contrary to his claims, no paradox or difficulty for the smooth ambiguity model of decision making under uncertainty developed by Klibanoff, Marinacci and Mukerji (2005). Not only are the thought experiments naturally handled by the smooth ambiguity model, but our reanalysis shows that they highlight some of its strengths compared to models such as the maxmin expected utility model (Gilboa and Schmeidler (1989)). In particular, these examples pose no challenge to the model's foundations, interpretation of the model as affording a separation of ambiguity and ambiguity attitude or the potential for calibrating ambiguity attitude in the model.

Suggested Citation

  • Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2011. "On the Smooth Ambiguity Model: A Reply," Working Papers 410, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:410
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    References listed on IDEAS

    as
    1. Epstein, Larry G. & Schneider, Martin, 2003. "IID: independently and indistinguishably distributed," Journal of Economic Theory, Elsevier, vol. 113(1), pages 32-50, November.
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    4. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    5. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    6. Ergin, Haluk & Gul, Faruk, 2009. "A theory of subjective compound lotteries," Journal of Economic Theory, Elsevier, vol. 144(3), pages 899-929, May.
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    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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