Dynamic consistency leads to Bayesian updating under expected utility. We ask what it implies for the updating of more general preferences. In this paper, we characterize dynamically consistent update rules for preference models satisfying ambiguity aversion. This characterization extends to...

The in°uence of risk aversion on the decision to become self-employed is a much discussed topic in the entrepreneurial literature. Conventional wisdom asserts that being an entrepreneur means making risky decisions in uncertain environments; hence more risk-averse individuals are less likely to...

Efficiency wage effects of profit sharing are combined with option values related to stochastic future pofit variations. These option effects occur if the workers' profit share is fixed by long-term contracts. The Pareto-improving optimal level of the sharing ratio is calculated for two...

Iktisat yazınında bireylerin belirsizlik altında karar alma davranışları çok uzun süredir incelenmektedir. Yazında standartlaşmış olan Beklenen Değer Teorisi gerçek yaşamı açıklayamadığı gerekçesiyle yoğun eleştirilere maruz kalmış, insan davranışlarıyla daha...

Although gambling is primarily an economic activity, no single theory of the demand for gambles has gained wide-spread acceptance among economists. This paper proposes a simple model of the demand for gambling that is based on the standard economic assumptions that (1) resources are scarce and...

Orderings of interdependence among random variables are useful in many economic contexts, for example, in assessing ex post inequality under uncertainty; in comparing multidimensional inequality; in valuing portfolios of assets or insurance policies; and in assessing systemic risk. We explore...

Raiffa (1961) criticizes ambiguity-averse preferences by claiming that hedging is possible with randomization of choices. We argue that the timing of randomization is crucial for hedging. Ex-ante randomizations, which are randomizations before a state is realized, could provide only ex-ante...

The conflict between Pareto optimality and incentive compatibility, that is, the fact that some Pareto optimal (efficient) allocations are not incentive compatible is a fundamental fact in information economics, mechanism design and general equilibrium with asymmetric information. This important...

The paper introduces a notion of complementarity (substitutability) of two signals which requires that in all decision problems each signal becomes more (less) valuable when the other signal becomes available. We provide a general characterization which relates complementarity and...