Ambiguity-Averse Aggregation under Heterogeneous Beliefs
If a complete-markets economy is composed of expected utility maximizers with heterogeneous beliefs and logarithmic utility, then it may be well represented via a single expected utility-maximizing agent with a “consensus belief”. For more general preferences, an “aggregation bias” necessitates alteration of the economy’s fundamentals if such a representation is to be constructed. But no such aggregation bias arises if the representative agent is allowed to be ambiguity averse, in the sense that he maximizes his Choquet expected utility under a convex “consensus capacity”. The economy thus becomes ambiguity averse in the aggregate as a consequence of heterogeneity in beliefs.
15 November 2022, 12:45 (Tuesday, 6th week, Michaelmas 2022)
Nuffield College, New Road OX1 1NF
Tom Norman (University of Oxford)
Department of Economics
Economic Theory Workshop
Members of the University only