Econometrica: May 2012, Volume 80, Issue 3

On the Smooth Ambiguity Model: A Reply

https://doi.org/10.3982/ECTA9775
p. 1303-1321

Peter Klibanoff, Massimo Marinacci, Sujoy Mukerji

We find that Epstein's (2010) 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.

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