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- Title
The dual theory of the smooth ambiguity model.
- Authors
Iwaki, Hideki; Osaki, Yusuke
- Abstract
This paper studies the 'dual' theory of the smooth ambiguity model introduced by Klibanoff et al. (Econometrica 73:1849-1892, ). Unlike the original model, we characterize attitudes toward ambiguity captured by second-order probabilities. First, we give a set of axioms to derive a dual representation of the smooth ambiguity model. Second, we present a characterization of ambiguity aversion. Last, as an application of our dual model to a portfolio problem, we conduct comparative static predictions which give sufficient conditions to guarantee that an increase in smooth ambiguity aversion decreases the optimal portfolio.
- Subjects
ECONOMIC models; PROBABILITY theory; PORTFOLIO management (Investments); FINANCIAL management; INVESTMENT analysis; PREDICTION theory
- Publication
Economic Theory, 2014, Vol 56, Issue 2, p275
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s00199-013-0779-6