Reference dependent ambiguity

Research output: Contribution to journalArticle

Abstract

Motivated by experimental and empirical evidence, I study a framework where reference-points - such as a status quo, endowment, or default option - can distort the way an individual responds to ambiguity. I characterize a model of reference-dependent maxmin expected utility, and provide behavioral foundations for comparing reference-dependent ambiguity attitudes. I also illustrate some implications of reference-dependent ambiguity for trade in an asset market, including underdiversification, no-trade, and the potential for a market collapse.

Original languageEnglish (US)
Pages (from-to)495-524
Number of pages30
JournalJournal of Economic Theory
Volume163
DOIs
StatePublished - May 1 2016

Keywords

  • Ambiguity
  • Market collapse
  • Reference-points

ASJC Scopus subject areas

  • Economics and Econometrics

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