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Ambiguity Aversion in the Long Run: "To Disagree, We Must Also Agree"
Código: WPE – 353
Pietro da Silva
José Heleno Faro
We consider an economy populated by smooth ambiguity-averse agents with complete markets of securities contingent to economic scenarios, where bankruptcy is permitted but there is a penalty for it. We show that if agentsí posterior belief reductions given by their ìaverage probabilistic beliefs” do not become homogeneous then an equilibrium does not exist. It is worth noting that our main result does not imply any convergence of ambiguity perception or even the attitudes towards it. In this way, complete markets with default and punishment allows for ambiguity aversion in the long run, and the agents can disagree on their ambiguity perception but they must agree on their expected beliefs.