Living with ambiguity: prices and survival when investors have heterogeneous preferences for ambiguity (Q926235)

The paper attempts to assess the impact of ambiguity aversion on asset prices when investors are heterogeneous with respect to their beliefs, their degree of risk aversion, and their degree of ambiguity aversion. In particular, the author characterizes, in a dynamic setting, conditions under which investors who are averse to ambiguity will have an effect on long run asset prices. It is demonstrated that when ambiguity averse investors influence prices they are empirically indistinguishable from pessimistic expected utility maximizers. The main result of the paper is that if an economy exhibits aggregate risk and there exists an expected utility maximizing investor with correct beliefs then any recursive multiple priors investor [see \textit{L. G. Epstein} and \textit{M. Schneider}, J. Econ. Theory 113, No. 1, 1--31 (2003; Zbl 1107.91360)] who satisfies the strict minimum consensus property will almost surely vanish.