This paper studies the hedging of price risk when payment dates are uncertain, a problem that frequently occurs in practice. It derives and establishes the variance minimizing dynamic hedging strategy, using forward contracts with different times to maturity. The resulting strategy fully hedges...

We address the problem of choosing a portfolio of policies under "deep uncertainty." We introduce the idea of belief dominance as a way to derive a set of non-dominated portfolios and robust individual alternatives. Our approach departs from the tradition of providing a single recommended...

Suppose that a group of agents having divergent expectations can share risks efficiently. We examine how this group should behave collectively to manage these risks. We show that the beliefs of the representative agent is in general a function of the group.s wealth level, or equivalently, that...

We establish a class of fully nonlinear conditional expectations. Similarly to the usage of linear expectations when a probabilistic description of uncertainty is present, we observe analogue quantitative and qualitative properties. The type of nonlinearity captures the agents sentiments of...

Epstein and Schneider (2007) develop a framework of learning under ambiguity, generalizing maxmin preferences of Gilboa and Schmeidler (1989) to intertemporal settings. The specific belief dynamics in Epstein and Schneider (2007) rely on the rejection of initial priors that have become...

We view innovation investment as a real option and explore the implications of ambiguity (Knightian uncertainty) and risk for innovation decisions. Our analysis uses a risk measure and a new outcome-independent measure of ambiguity. We find a consistently significant negative effect of ambiguity...

Experiments on intertemporal consumption typically show that people have difficulties in optimally solving such problems. Previous studies have focused on contexts in which agents are faced with risky future incomes and have to plan over long horizons. We present an experiment comparing decision...

In this study, we present a behavioral definition of betrayal aversion with sources of uncertainty and develop a framework for various trust games, including context dependence, communication, and pressure. In our framework, attitudes toward betrayal aversion depend on the perception of...

A hypothesis of uncertain future was created and first applied in the field of utility and prospect theories. An extension of application of the hypothesis to the field of forecasting is considered in the article. The concept of inevitability of unforeseen events is a part of the hypothesis of...

We review some of the (theoretical) economic implications of David Schmeidler's models of decision under uncertainty (Choquet expected utility and maxmin expected utility) in competitive market settings. We start with the portfolio inertia result of Dow and Werlang (1992), show how it does or...