This paper is a revised and extended version of Chapters 7 and 8 of my dissertation at Northwestern University; some of the results were also reported in my job market paper. Part of this research was done while I was visiting the Economic Theory Center at Princeton University, to which I am very grateful for its support and hospitality. I thank Roland Benabou, John Campbell, Eddie Dekel, Mira Frick, Drew Fudenberg, Paolo Ghirardato, Faruk Gul, Yoram Halevy, Peter Klibanoff, Fabio Maccheroni, Morgan McClellon, Massimo Marinacci, Stephen Morris, Sujoy Mukherji, Wolfgang Pesendorfer, Ben Polak, Tom Sargent, Todd Sarver, Uzi Segal, and Marciano Siniscalchi for very helpful discussions and suggestions. I am very grateful to a co-editor and three anonymous referees for their insightful and helpful comments. All errors are mine.
Temporal Resolution of Uncertainty and Recursive Models of Ambiguity Aversion
Article first published online: 16 MAY 2013
© 2013 The Econometric Society
Volume 81, Issue 3, pages 1039–1074, May 2013
How to Cite
Strzalecki, T. (2013), Temporal Resolution of Uncertainty and Recursive Models of Ambiguity Aversion. Econometrica, 81: 1039–1074. doi: 10.3982/ECTA9619
- Issue published online: 16 MAY 2013
- Article first published online: 16 MAY 2013
- Manuscript received October, 2010; final revision received October, 2012.
- preference for early resolution of uncertainty
Dynamic models of ambiguity aversion are increasingly popular in applied work. This paper shows that there is a strong interdependence in such models between the ambiguity attitude and the preference for the timing of the resolution of uncertainty, as defined by the classic work of Kreps and Porteus (1978). The modeling choices made in the domain of ambiguity aversion influence the set of modeling choices available in the domain of timing attitudes. The main result is that the only model of ambiguity aversion that exhibits indifference to timing is the maxmin expected utility of Gilboa and Schmeidler (1989). This paper examines the structure of the timing nonindifference implied by the other commonly used models of ambiguity aversion. This paper also characterizes the indifference to long-run risk, a notion introduced by Duffie and Epstein (1992). The interdependence of ambiguity and timing that this paper identifies is of interest both conceptually and practically—especially for economists using these models in applications.