925 research outputs found
Ambiguity aversion and incompleteness of contractual form
No full textSubjective uncertainty is characterized by ambiguity if the decision maker has an imprecise knowledge of the probabilities of payoff relevant events. In such an instance, the decision maker's beliefs are better represented by a set of probability functions than by a unique probability function. An ambiguity averse decision maker adjusts his choice on the side of caution in response to his imprecise knowledge of the odds. The non-additive expected utility model allows a formal characterization of such behaviour. Using this model, this paper shows that ambiguity aversion can explain the existence of incomplete contracts. The setting for the demonstration is the investment hold-up model which has been the focus of much of the recent research on the implications of incomplete contracts
On the Smooth Ambiguity Model: A Reply
No full textWe …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 a¤ording a separation of ambiguity and ambiguity attitude or the potential for calibrating ambiguity attitude in the model
Recursive Smooth Ambiguity Preferences.
No full textThis paper axiomatizes an intertemporal version of the Smooth Ambiguity decision model developed in [P. Klibanoff, M. Marinacci, S. Mukerji, A smooth model of decision making under ambiguity, Econometrica 73 (6) (2005) 1849–1892]. A key feature of the model is that it achieves a separation between ambiguity, identified as a characteristic of the decision maker's subjective beliefs, and ambiguity attitude, a characteristic of the decision maker's tastes. In applications one may thus specify/vary these two characteristics independent of each other, thereby facilitating richer comparative statics and modeling flexibility than possible under other models which accommodate ambiguity sensitive preferences. Another key feature is that the preferences are dynamically consistent and have a recursive representation. Therefore techniques of dynamic programming can be applied when using this model
Signal analysis of the electromyogram
No full textThe author has postulated that the relevant information of the human neuromuscular system during voluntary muscle contractions is contained in the surface electromyogram, or EMG. This information is important in diagnosis, modelling and rehabilitation, and consists of two parts. The first is the action potential waveform of motor units, and the second the random firing pattern of several such units. This hypothesis is borne out by the existing state of art in electrophysiological analysis and modelling. Rigorous statistical analysis of the EMG of three muscles of volunteers showed gross similarities in variance, statistical bandwidth and spectral moments, which suggested that a common physical phenomenon was involved. A biphasic waveform model of the action potential was formulated, and its estimated parameters obtained from spectral-moment functions showed strong similarities for different subjects, as well as for all three muscle groups. On the basis of these preliminary analyses, and using digital filtering techniques, the EMG spectra were decomposed, with the expectation of obtaining the action-potential waveform and the firing-patterns. This was indeed found to be so, the spectrum off the model closely agreeing with that obtained from spectral decomposition of the real signal. Moreover, a realistic average waveform of the action-potential was obtained, in addition to estimates of the number of such waves in each data segment. A set of analytical results and statistics of similarity-parameters are presented, considered to be the first of their kind anywhere to be basedon the decoded surface electromyogram alone.</p
Comment on Ellsberg's two-color experiment, portfolio inertia and ambiguity
No full textThe final step in the proof of Proposition 1 (p.311) of Mukerji and Tallon (2003) may not hold in generalbecause in the proof cannot be chosen independently of . We point out by a counterexample that the axioms they impose are too weak for Proposition 1. We introduce a modified set of axioms and re-establish the propositionambiguity;bid ask spread;Ellsberg paradox
Ambiguity Aversion and Cost-Plus Procurement Contracts
No full textThis paper presents a positive theory about the contractual form of procurement contracts under cost uncertainty. While the cost of manufacture is uncertain it can be controlled, to an extent depending on the effort exerted by the agent. The effort exerted by the agent is not contractible but causes disutility to the agent. Hence, the amount of effort exerted depends on the power of incentives built into the terms of reimbursement agreed to in the contract. The analysis in the paper explicitly models the possibility that the belief about the cost uncertainty is ambiguous, in the sense that belief is described by a set of probabilities, rather than by a single probability. This allows us to incorporate ambiguity aversion (behavior of the kind seen in Ellsberg`s "paradox") into the players` objective functions. The paper finds that, provided the agent is more averse to ambiguity than the principal, the more the ambiguity of belief the lower the power of the optimal incentive scheme. The fix-price contract is optimal if there is no ambiguity, but if the ambiguity is high enough a cost-plus contract is optimal; in between, a cost-share scheme is optimal. It is contended that the finding is particularly useful in explaining facts about the wide use of cost-plus and similar low powered contracts in research and development (R&D) procurement by the U.S. Department of Defense.Procurement contracts, Incentive contracts, Uncertainty aversion, Ellsberg`s paradox, Cost reimbursement contracts, Cost-plus contracts, Fixed price contracts
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