Economic Theory

, Volume 67, Issue 1, pp 53–89 | Cite as

Ambiguity sensitive preferences in Ellsberg frameworks

  • Claudia RavanelliEmail author
  • Gregor Svindland
Research Article


We study the market implications of ambiguity sensitive preferences using the \(\alpha \)-maxmin expected utility (\(\alpha \)-MEU) model. 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 et al. (Rev Financ Stud 23:1325–1359, 2010). Only when there are three or more ambiguous states, \(\alpha \)-MEU, maxmin, maxmax and SEU models induce different portfolio choices. We suggest criteria to discriminate among these models in laboratory experiments and show that ambiguity seeking agents may prevent the existence of market equilibrium. Our results indicate that ambiguity matters for portfolio choice and does not wash out in equilibrium.


Ellsberg framework \(\alpha \)-maxmin expected utility model Ambiguity aversion Portfolio choice Market equilibrium 

JEL Classification

G11 G12 C92 D53 



We are particularly indebted to Larry Epstein and Bill Zame for insightful discussions. For helpful comments we thank Peter Bossaerts, Pierre Collin-Dufresne, Darrell Duffie, Damir Filipovic, Lorenzo Garlappi, Paolo Ghirardato, Julien Hugonnier, Pablo Koch-Medina, Leonid Kogan, Loriano Mancini and Jean-Charles Rochet, as well as the participants of the 2016 Risk and Stochastics Conference at London School of Economics.


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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Banking and Finance, Center for Finance and InsuranceUniversity of ZurichZurichSwitzerland
  2. 2.Mathematics InstituteLMU MunichMunichGermany

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