Axiomatic Foundations of Multiplier Preferences
33 Pages Posted: 17 Dec 2009
Date Written: December 1, 2009
Abstract
This paper axiomatizes the robust control criterion of multiplier preferences introduced by Hansen and Sargent (2001). The axiomatization relates multiplier preferences to other classes of preferences studied in decision theory, in particular the variational preferences, recently introduced by Maccheroni, Marinacci and Rustichini (2006). The paper also establishes a link between the parameters of the multiplier criterion and the observable behavior of the agent. This link enables measurement of the parameters on the basis of observable choice data and provides a useful tool for applications.
Keywords: Ambiguity aversion, model uncertainty, robustness
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