On the Smooth Ambiguity Model: A Reply
Peter Klibanoff, Massimo Marinacci, Sujoy Mukerji
Econometrica · 2012 · Volume 80 · Issue 3
Abstract
We find that Epstein's (2010) Ellsberg-style thought experiments pose, contrary to his claims, no paradox or difficulty for the smooth ambiguity model of decision making under uncertainty developed by Klibanoff, Marinacci, and Mukerji (2005). Not only are the thought experiments naturally handled by the smooth ambiguity model, but our reanalysis shows that they highlight some of its strengths compared to models such as the maxmin expected utility model (Gilboa and Schmeidler (1989)). In particular, these examples pose no challenge to the model's foundations—interpretation of the model as affording a separation of ambiguity and ambiguity attitude or the potential for calibrating ambiguity attitude in the model.
Keywords
Ambiguity, smooth ambiguity model, Ellsberg, ambiguity aversion, ambiguity hedging, multiple priors, full state space, second order acts, separation of ambiguity from ambiguity attitude
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