Rational Expectations and Ambiguity: A Comment on Abel (2002)


Ludwig, Alexander ; Zimper, Alexander


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URL: https://ub-madoc.bib.uni-mannheim.de/885
URN: urn:nbn:de:bsz:180-madoc-8858
Document Type: Working paper
Year of publication: 2004
Publication language: English
Institution: Außerfakultäre Einrichtungen > Mannheim Research Institute for the Economics of Aging (MEA) (- 6/2011) (Börsch-Supan) (Börsch-Supan)
MADOC publication series: Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject: 330 Economics
Classification: JEL: G20 D81 ,
Subject headings (SWD): Pessimismus , Optimismus , Ambiguität
Abstract: Abel (2002) proposes a resolution of the riskfree rate and the equity premium puzzles by considering pessimism and doubt. Pessimism is characterized by subjective probabilistic beliefs about asset returns that are stochastically dominated by the objective distribution of these returns. The subjective distribution is characterized by doubt if it is a meanpreserving spread of the objective distribution. This note offers a decision theoretic foundation of Abel's ad-hoc definitions of pessimism and doubt under the assumption that individuals exhibit ambiguity attitudes in the sense of Schmeidler (1989). In particular, we show that the behavior of a representative agent, who resolves her uncertainty with respect to the true distribution of asset returns in a pessimistic way, is the equivalent to pessimism in Abel's sense. Furthermore, a representative agent, who takes into account pessimistic as well as optimistic considerations, may result in the equivalent to doubt in Abel's sense.
Additional information:

Dieser Eintrag ist Teil der Universitätsbibliographie.

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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Ludwig, Alexander ; Zimper, Alexander (2004) Rational Expectations and Ambiguity: A Comment on Abel (2002). Open Access [Working paper]
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