Ambiguity Aversion in Ellsberg Frameworks

44 Pages Posted: 18 Jul 2013 Last revised: 28 Oct 2015

See all articles by Claudia Ravanelli

Claudia Ravanelli

Center for Finance and Insurance

Gregor Svindland

Ludwig Maximilian University of Munich (LMU)

Date Written: October 27, 2015


We study optimal portfolio choice and equilibrium asset prices induced by alpha-maxmin expected utility (alpha-MEU) models. In the standard Ellsberg framework we prove that alpha-MEU preferences are equivalent to either maxmin, maxmax or subjective expected utility (SEU). We show how ambiguity aversion impacts equilibrium asset prices, and revisit the laboratory experimental findings in Bossaerts, Ghirardato, Guarnaschelli, and Zame (2010). Only when there are three or more ambiguous states the alpha-MEU, maxmin, maxmax and SEU models induce different portfolio choices. We suggest criteria to discriminate among these models in laboratory experiments. Finally, we find that ambiguity seeking alpha-MEU agents may prevent the existence of market equilibrium. Our results indicate that ambiguity matters for portfolio choice and does not wash out in equilibrium.

Keywords: Ellsberg framework, alpha-maxmin expected utility model, ambiguity aversion, portfolio choice, market equilibrium

JEL Classification: G11, G12, C92, D53

Suggested Citation

Ravanelli, Claudia and Svindland, Gregor, Ambiguity Aversion in Ellsberg Frameworks (October 27, 2015). Available at SSRN: or

Claudia Ravanelli (Contact Author)

Center for Finance and Insurance ( email )

Plattenstrasse 14
Z├╝rich, 8032
+41 44 634 29 81 (Phone)


Gregor Svindland

Ludwig Maximilian University of Munich (LMU) ( email )

Theresienstrasse 39
Munich, 80333

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