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Abstract
Epstein and Schneider (2007) develop a framework of learning under ambiguity, generalizing maxmin preferences of Gilboa and Schmeidler (1989) to intertemporal settings. The specific belief dynamics in Epstein and Schneider (2007) rely on the rejection of initial priors that have become implausible over the learning process. I demonstrate that this feature of ex-post rejection of theories gives rise to choices that are in sharp contradiction with ambiguity aversion. Concrete, the intertemporal maxmin decision-maker equipped with such belief dynamics prefers, under prevalent conditions, a bet in an ambiguous urn over the same bet in a risky urn. I offer two modifications of their framework, each of which is capable of avoiding this anomaly.
Document type: | Working paper |
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Series Name: | Discussion Paper Series, University of Heidelberg, Department of Economics |
Volume: | 0573 |
Place of Publication: | Heidelberg |
Date Deposited: | 21 Oct 2014 09:44 |
Date: | October 2014 |
Number of Pages: | 21 |
Faculties / Institutes: | The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics |
DDC-classification: | 330 Economics |
Uncontrolled Keywords: | learning under ambiguity, multiple prior, maxmin, ambiguity aversion |
Series: | Discussion Paper Series / University of Heidelberg, Department of Economics |