This paper analyzes optimal wage contracting assuming agents are not subjective expected utility maximizers but are, instead, ambiguity (or uncertainty) averse decision makers who maximize Choquet expected utility. We show that such agents will choose not to include any indexation coverage in...

In an asymmetric war of attrition the players` prize valuations are drawn from different distributions. A stochastic strength ordering, based upon relative hazard rates, is used to rank these distributions. The stochastically stronger player is perceived to be strong ex ante, even though her...

This paper characterises the dynamic behaviour of a growing economy where individuals keep up with the Joneses' and face uninsurable labour income risk. Idiosyncratic uncertainty about future labour income reduces the marginal propensity to consume out of financial wealth and raises the...

An experiment on choices between single and compound lotteries is presented, and results are calibrated with neural network models. Many subjects tend to average out probabilities, though behaviour becomes more rational with more exposure to compound lotteries in the practice stage. The Prior...

This paper starts with a re-examination of Piccione and Rubinstein`s Absent-Minded Driver problem, and suggests a novel interpretation of Aumann, Hart and Perry`s notion of action-optimality. We then consider several variants of the original problem in which the assumption that the player`s...

This paper tests for reference dependence, using data from Impressionist and Contemporary Art auctions. We distinguish reference dependence based on rule of thumb learning from reference dependence based on rational learning. Furthermore, we distinguish pure reference dependence from effects due...

In partial equilibrium a rapidly rising carbon tax encourages oil producers to extract fossil fuels more quickly, giving rise to the Green Paradox. General equilibrium analysis for a closed economy shows that a rapidly rising carbon tax negatively affects the interest rate, which tends to weaken...

If agent`s (subjective) beliefs are ambiguous then the beliefs may not be represented by a unique probability distribution in the standard Bayesian fashion but instead by a set of probabilities. Roughly put, an ambiguity averse decision maker evaluates an act by the minimum expected value that...