Efficient allocations under ambiguity

Tomasz Strzalecki, Jan Werner

Research output: Contribution to journalArticlepeer-review

13 Scopus citations

Abstract

Important implications of the expected utility hypothesis and risk aversion are that if agents have the same probability belief, then consumption plans in every efficient allocation of resources under uncertainty are comonotone with the aggregate endowment, and if their beliefs are concordant, then the consumption plans are measurable with respect to the aggregate endowment. We study these two properties of efficient allocations for models of preferences that exhibit ambiguity aversion using the concept of conditional beliefs, which we introduce in this paper. We provide characterizations of such conditional beliefs for the standard models of preferences used in applications.

Original languageEnglish (US)
Pages (from-to)1173-1194
Number of pages22
JournalJournal of Economic Theory
Volume146
Issue number3
DOIs
StatePublished - May 2011

Keywords

  • Ambiguity aversion
  • Common prior
  • Conditional beliefs
  • Risk sharing

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