misspecified models. Under model misspecification, standard Bayesian learning loses its formal justification and biased learning … processes may provide a selection advantage. However, considering two cases of model misspecification and four learning … processes, our analysis reveals a general difficulty in ranking learning behaviors with respect to their long-run performances …

I study the effects of risk and ambiguity (Knightian uncertainty) on optimal portfolios and equilibrium asset prices … ambiguity leads to portfolio inertia and excess volatility. Specifically, when news is surprising, then investors may not react …

under ambiguity, called Shadow probability theory, a generalization of the Choquet expected utility. In this model … probability space. The level of ambiguity, and the decision maker's attitude toward it, are measured with respect to the directing …. The desired distinction between preferences and beliefs and between risk and ambiguity is then obtained. A measure of …

ambiguity-Knightian uncertainty. The effect of ambiguity is distinct from and contrasts with the well-documented effect of risk …, and shares a similar economic significance. An increase in ambiguity is associated with a subsequent reduction in stock … peers' ambiguity, suggesting information spillovers. Interestingly, an increase in ambiguity is associated with a subsequent …

all-stock rebalancing rule in hindsight), we reduce the "cost of universality" and achieve a higher learning rate. …