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 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...

The security level models of Gilboa (1988) and of Jaffray (1988) as well as the security and potential level model of Cohen (1992) and Essid (1997) successfully accommodate classical Allais paradoxes while they offer an interesting explanation for their occurrence. However, experimental data...

Aumann (1976) derives his famous we cannot agree to disagree result under the assumption of rational Bayesian learning. Motivated by psychological evidence against this assumption, we develop formal models of optimistically, resp. pessimistically, biased Bayesian learning within the framework of...

This note demonstrates that a lattice game with strategic substitutes is dominancesolvable if and only if there exists a unique fixed point of the function that results from an iteration of the best response function. This finding complements a result of Milgrom and Roberts’ (1990) by...

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...

The financial sector of emerging economies in Africa is characterized by a non-competitive banking sector which dominates any direct participation of agents in asset markets. Based on a variant of Diamond and Dybvig's (1983) model of financial inter-mediation, we formally explain both stylized...