We derive conditions such that optimal liquidity provisions through a demand deposit scheme can be sustainably implemented in a subgame perfect Nash equilibrium under the assumption that renegade investors have free access to ex-post asset markets. As our qualitative main finding we demonstrate...

In standard models of Bayesian learning agents reduce their uncertainty about an eventÂ’s true probability because their consistent estimator concentrates almost surely around this probabilityÂ’s true value as the number of observations becomes large. This paper takes the empirically...

This paper introduces an equilibrium concept for boundedly rational agents who base their demand-supply decisions on incorrect price anticipations. Formally, we differentiate between equilibrium and out-of-equilibrium states. If the agents attach zero prior probability to all out-of-equilibrium...

Existing no trade results are based on the common prior assumption (CPA). This paper identifies a strictly weaker condition than the CPA under which speculative trade is impossible in a rational expectations equilibrium (REE). As our main finding, we demonstrate the impossibility of speculative...

This paper experimentally tests whether violations of Savage's (1954) subjective expected utility theory decrease if the ambiguity of an uncertain decision situation is reduced through statistical learning. Because our data does not show such a decrease, existing models which formalize ambiguity...

Based on the axiomatic framework of Choquet decision theory, we develop a closed-form model of Bayesian learning with ambiguous beliefs about the mean of a normal distribution. In contrast to rational models of Bayesian learning the resulting Choquet Bayesian estimator results in a long-run bias...

This paper models the empirical phenomenon of persistent “…fifty-…fifty ”probability judgements within a dynamic non-additive Savage framework. To this purpose I construct a model of Bayesian learning such that an agent’s probability judgement is characterized as the solution...

We combine new developments in decision theory with a standard consumption-based asset-pricing framework. In our model the efficient market hypothesis is violated if and only if agentsÂ’ beliefs' express ambiguity about the stochastic process driving economic fundamentals. Asset price...

This paper introduces an epistemic model of a boundedly rational agent under the two assumptions that (i) the agent's reasoning process is in accordance with the model but (ii) the agent does not reflect on these reasoning processes. For such a concept of bounded rationality a semantic...

This paper explores the problem of a social planner willing to improve the welfare of individuals who are unable to compare all available alternatives. The optimal decision trades off the individuals' desire for flexibility versus their aversion towards ambiguous choice situations. We introduce...