# Questions tagged [uncertainty]

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### Lotteries = probability distribution?

Are "lotteries" in the model for choice under uncertainty not just probability distributions?
31 views

### Term for risk AND ambiguity

This question is related to References for particular definitions of risk and uncertainty, which offers an excellent description of risk and uncertainty. Just as a recap: Knight (1921) described risk ...
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### Can we compare risks of lotteries?

I understand the concepts of risk-aversion, risk neutrality and risk-attraction. I wonder if it possible to compare risks between two lotteries without giving the utility function. For instance, Let ...
45 views

### Certainty equivalent and risk premium

I'd like some guidance on the below practice question on uncertainty in consumer theory. I think I am confused on the certainty equivalent & risk premium or I'm not understanding the question. ...
76 views

### Intertemporal choice with possibility of death

Here is the setup: Suppose that there is an individual who lives up to two periods. He lives with absolute certainty during period $1$, and during this period his sub-utility function is given by: ...
69 views

### How to prove the relationship between the expected value of a lottery and its certainty equivalent?

Utility function $u(x)$ is monotonic. I want to prove that $u(x)$ exhibits risk aversion if and only if for all lottery $F$: $E(x) \geq CE(F,u)$ (CE is certainty equivalent). (Definition of $CE$: the ...
16 views

### Existence of optimal strategy in a choice problem with uncertainty and information structure

Consider a decision maker choosing an action, $y$, from the finiteset $\mathcal{Y}$, possibly without having complete information about the state of the world. More precisely, let $V$ be a ...
44 views

### Robust predictions in single-agent decision problem with uncertainty

I would like your help to better understand the possibility of using the notion of Bayes Correlated Equilibrium (BCE) in a single-agent decision problem with uncertainty to make predictions on optimal ...
45 views

### Optimal strategy in a single-agent choice problem under uncertainty

Consider the following single-agent choice problem under uncertainty. Let $V$ be the state of the world with support $\mathcal{V}$ and probability distribution $P_V\in \Delta(\mathcal{v})$. First, ...
21 views

### Dominated lotteries in CPE

I have been looking into expectation-based loss aversion following KÅszegi-Rabin (2005, 2007). In particular, I find their choice-acclimating personal equilibrium (CPE) interesting, but it has a ...
157 views

### Existence of 'best' and 'worst' lottery

How can 'the best and worst lotteries exist when the set of outcome is finite and the rational preference relation satisfies independence axiom' be proven?
71 views

### Archimedean but not mixture continuous

In the context of preferences on a set of lotteries on a finite set $X$, what is an example of a preference that is independent, Archimedean but not mixture continuous? I know the mixture continuous ...
115 views

### Why Certainity Eqivalence in PIH only holds for quadratic utilities

In my current macro economics course, it has been stated that there is certainty equivalence in the random walk permanent income hypothesis ("which implies individuals act as if future consumption was ...
292 views

### Question on uncertainity

Please imagine that Nicole is uncertain of her future wealth. Her wealth in the bad state of the world is zero. Her wealth in the good state is $w>0$. Each state is initially equally likely. ...
55 views

### Indiference between two lotteries

Suppose that a binary relation satisfies only: Independence axiom: $LāæLā²āŗĪ±\circ L+(1āĪ±)\circ Lā²ā²āæĪ±\circ Lā²+(1āĪ±) \circ Lā²ā²$ Reduction to simple lotteries: For all $g$, $g~g'$, $g'$ is the simple ...
181 views

### Uncertainty in an unfair gamble

If a risk averse person is given the option of a certain amount of 2000 or playing a lottery game giving him 10000 with 25% probability, and 500 with 75%, then what would he do ?. The bet here is not ...
63 views

### Profit maximization under uncertainity

I have a seller say S and I have a buyer say B. Buyerās willing to pay is equal to x which is private information. But Seller believe that it falls in the range [0,x1]. Sellerās belief distribution is ...
672 views

### What exactly is certainty equivalence in the context of DSGE models?

I keep reading about certainty equivalence in the context of DSGE models. I understand that it has something to do with "Getting rid of the expectation operator", but I'm not entirely sure? ...
56 views

### A growth model with regime switch

I have a very general question. I am reading this paper : http://www.webmeets.com/files/papers/eaere/2015/177/Discounting-HelsinkiBlind.pdf There is a catastrophic event probability and after the ...
726 views

### References for particular definitions of risk and uncertainty

I have some doubts about risk vs. uncertainty. I have read the thread "What is the difference between risk, uncertainty and ambiguity" and have skimmed through Knight's "Risk, Uncertainty, and Profit" ...
149 views

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### Probability of states of nature

I've been given the following question and would really appreciate any help on part a. I've looked over all of my resources for this course and we have always been given the probability of the ...
278 views

### Economics of forgetting

I'm interested to know economic justifications of forgetting in various fields. On example is Green and Porter(1984). To sustain a Cartel, Cartel members have incentive to forget deviations in a ...
58 views

### What's the status on uncertainty shocks?

Bloom (2009) analyzes the impact of uncertainty shocks, and Bloom et al (2014) propose a business cycle model based on these shocks. It seems to be a young field, but is there any consensus on ...
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### Multiplicative factorization of stochastic growth time series--solving for an eigenfunction/eigenvector

I'm trying to understand the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies." In a part in the paper, Hansen introduces a long-...
215 views

### How could the Euro zone be broken up in an ordered way?

Letās assume that the members of Euro zone all agreed that it would end in 18 months time with each country getting its own currency. What process could be put in place to allow this to happen ...
756 views

### How is momentum justified as a common risk factor?

Momentum as a common risk factor? This question is partly a follow-up to another question found here. In this other question it was noted in momentum is difficult to explain as a common risk factor ...
672 views

### What is the advantage and disadvantage of fiscal illusion policy in terms for the financial market?

What is the advantage and disadvantage of fiscal illusion policy for the financial market? Fiscal illusion suggests that when government revenues are not completely transparent or are not fully ...