Broll, Udo; Welzel, Peter; Kit, Pong Wong - 2016
We examine risk taking when the bank's preferences exhibit smooth ambiguity aversion. Ambiguity is modeled by a second …-order probability distribution that captures the bank's uncertainty about which of the subjective beliefs govern the financial asset … the case of greater ambiguity aversion. Given that the competitive bank's smooth ambiguity preferences exhibit non …