Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/113913
Authors: 
Berger, Loïc
Year of Publication: 
2015
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 15.2015
Abstract: 
Most decisions concerning (self-)insurance and self-protection have to be taken in situations in which a) the effort exerted precedes the moment uncertainty realises, and b) the probabilities of future states of the world are not perfectly known. By integrating these two characteristics in a simple theoretical framework, this paper derives plausible conditions under which ambiguity aversion raises the demand for (self-)insurance and self-protection. In particular, it is shown that in most usual situations where the level of ambiguity does not increase with the level of effort, a simple condition of ambiguity prudence known as decreasing absolute ambiguity aversion (DAAA) is sufficient to give a clear and positive answer to the question: Does ambiguity aversion raise the optimal level of effort?
Subjects: 
Non-expected Utility
Self-protection
Self-insurance
Ambiguity Prudence
JEL: 
D61
D81
D91
G11
Document Type: 
Working Paper

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