The distinction of risk vs uncertainty as made by Knight has important implications for policy selection. Assuming the former when the latter is relevant can lead to wrong decisions. With the aid of a stylized model that describes a bank's decision on how to allocate loans, we discuss decision...

A recent theoretical model by Epstein and Schneider (2008) predicts that a firm's assets will be undervalued by the market if the information surrounding these assets is ambiguous. The model further predicts that this effect is amplified if the underlying fundamentals are volatile. This paper...

This paper establishes, in the setting of Brownian information, a general equilibrium existence result in a heterogeneous agent economy. The existence is generic among income distributions. Agents differ moreover in their stochastic differential formulation of intertemporal recursive utility....

The distinction of risk vs uncertainty as made by Knight has important implications for policy selection. Assuming the former when the latter is relevant can lead to wrong decisions. With the aid of a stylized model that describes a bank’s decision on how to allocate loans, the authors discuss...

The distinction of risk vs uncertainty as made by Knight has important implications for policy selection. Assuming the former when the latter is relevant can lead to wrong decisions. With the aid of a stylized model that describes a bank's decision on how to allocate loans, the authors discuss...

Managers wish to verify that a particular engineering design meets their requirements. This design's future environment will differ from the environment assumed during the design. Therefore it is crucial to determine which variations in the environment may make this design unacceptable. The...

Despite decades of global attention, effective climate policy implementation remains challenging, with firms and investors often grappling with uncertainty about potential policymaking in addition to actual policy changes. This paper introduces a novel Climate Policy Uncertainty (CPU) index,...

In valuation practice, it is common to use point estimates for input variables to arrive at a point estimate of value. This practice has its roots in the twentieth century, where data was difficult or expensive to access, and practitioners had weak tools. As data becomes more accessible and...

We develop a model of risk-averse forecasters whose relative performance evaluation provides strategic misreporting incentives. Benchmarking against peers' performance results in herd behavior to avoid underperformance; a winner-take-all contest leads to deviations from peers. Uncertainty...

We study the stability of the no-arbitrage property under model uncertainty. We measure model uncertainty with the total variation distance of underlying probability distributions. We show that sufficiently small changes of the underlying probability distribution preserve the no-arbitrage...