# Questions tagged [uncertainty]

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### How to solve for the competitive equilibrium in this very lopsided model?

Suppose there's an infinite-horizon pure-exchange economy with 2 agents. Utility function for both agents is $$u(c)=\frac{c^{1-\sigma}}{1-\sigma}$$ The state at $t\geq 0$ is a random variable, $s_t$, ...
116 views

### Minimal assumption for a “certainty equivalence” exists

Let $R$ be the set of real number. Let $N$ be an infinite set. Let utility $u:R^N\to R$. The utility function is strictly monotonic. My question is, does the certainty equivalence $CE$ exist? Do we ...
57 views

### What are the theoretical approaches to ambiguity?

I'm trying to understand the different approaches that economists took to investigate ambiguity. Two approaches particularly caught my eyes: the model by Klibanoff, Marinacci and Mukerji (2009), and ...
1 vote
589 views

### How do you prove NO difference in Expected Value, between gambling (probable $−$ EV) vs. investing (probable $+$ EV)?

How do you mathematically prove that "From a mathematical expected-value standpoint, there is no difference between gambling (e.g. buying a lottery ticket) and investing (e.g. buying a share of ... 100 views

61 views

### CARA risk-parameter estimation for discrete data as in Holt and Laury (2002)

I have a dataset with around 40 participants who choose between a pair of lotteries A or B while the probabilities of prizes change. This setting is similar to that in Holt and Laury (2002): Risk ...
45 views

### Problem on VNM utility

Preferences are represented by the function $u(w) = √w$ . An investor has 5000 dollars that can be invested. Investing $X ∈ [0,5000]$ he will receive $r_H X$ in addition to W with probability $P$ and ...
51 views

1 vote
289 views

### Expected utility function and Full insurance

Bob is an expected utility maximizer with utility function $u(x) = −e^{−ax}$, where $a > 0$ is a parameter. Bob has wealth $w$. There are two states of the world, a good state and a bad state. The ...
265 views

### Von-Neumann vs Bernoulli Utility? Do properties of Bernoulli translate to VNM?

This is for a HW question but I am not asking on how to solve the question, just a conceptual question. According to my understanding, A Von-Neumann Utility function represents preferences over ...
1 vote
96 views

### Arrow debreu equilibrium or Radner equilibrium and spot prices

Suppose there are 2 states, 2 goods and 2 consumers and consumers have identical expected utility function: $U^i (x)= \sum_{s=1,2} \pi_s (\ln x_{1s}+\ln x_{2s} )$ where $\pi=(1/3,2/3)$. Endowments are ...
103 views

### Most utility functions under risk and uncertainty generalizes expected utility. What is deadly wrong if a model does not include EU as special case?

Why do people generalize EU instead of making an entirely new model, or create a model that is neither a special case nor an extension of EU? To my knowledge, most utility functions under risk and ...
23 views

### Risk Aversion under Worst Case Utility Representation

The preference relations (≿A and ≿B) over lotteries is defined as: p ≿ q iff min{v(z) : p(z) > 0} ≥ min{v(z) : q(z) > 0} Under what conditions can you say that ≿A is more risk averse than ≿B?