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Christoph KUZMICS - UNIVERSITY OF GRAZ

" Limit Orders and Knightian Uncertainty" (joint work with Michael Greinecker) "

Abstract : Ambiguity averse decision-makers can behave in financial portfolio problems in ways that cannot be rationalized as subjective expected utility maximization. Indeed, [Dow and da Costa Werlang, Econometrica 1992] show that an ambiguity-averse decision-maker might abstain from trading an asset for a wide interval of prices ; something no subjective expected utility maximizer can. Dow and da Costa Werlang assume that decision-makers know the price of an asset when trading. We show that when markets operate via limit orders instead, all investment behavior of an ambiguity-averse decision-maker is observationally equivalent to the behavior of a subjective expected utility maximizer with the same risk preferences ; ambiguity aversion has no additional explanatory power.

décembre 2021 :

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