Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098604 | Journal of Economic Dynamics and Control | 2014 | 19 Pages |
Abstract
Based on the axiomatic framework of Choquet decision theory, we develop a closed-form model of Bayesian learning with ambiguous beliefs about the mean of a normal distribution. In contrast to rational models of Bayesian learning the resulting Choquet Bayesian estimator results in a long-run bias that reflects the agent's ambiguity attitudes. By calibrating the standard equilibrium conditions of the consumption based asset pricing model we illustrate that our approach contributes towards a resolution of the risk-free rate puzzle. For a plausible parameterization we obtain a risk-free rate in the range of 3.5-5%. This is 1-2.5% closer to the empirical risk-free rate than according calibrations of the rational expectations model.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Alexander Ludwig, Alexander Zimper,