2005 Fiscal Year Final Research Report Summary
Knightian uncertainty and macroeconomics
| Project/Area Number |
15530115
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Economic theory
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| Research Institution | KEIO UNIVERSITY (2005)
Tohoku University (2003-2004) |
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Principal Investigator |
OZAKI Hiroyuki KEIO UNIVERSITY, Economics, Professor, 経済学部, 教授 (90281956)
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| Project Period (FY) |
2003 – 2005
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| Keywords | risk / subjective expected utility / Knightian uncertainty / maximin expected utility |
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| Research Abstract |
The model in which the subjective probability is given to each event and economic agent maximizes expected utility with respect to the given probability is called subjective expected utility theory. On the other hand, the situation in which the degree of uncertainty is too large to be summarized by a single probability and it may be summarized by a "set" of probabilities is called Knightian uncertainty. The model in which the probability which minimizes the expected utility is chosen is called maximin expected utility theory. In main stream macroeconomics subjective expected utility theory was assumed so far. This research project uses maximin expected utility theory to analyze the macroeconomic phenomenon. In particular, the following point was found. In typical job search model which uses subjective expected utility, increase of risk is expressed by mean-preserving spread and increase of risk makes the period of job search longer. However, increase of uncertainty seems to make the pe
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riod of job search shorter because it is more natural to think that an unemployed worker takes the job offer more quickly to avoid future uncertainty. If we regard the increase of uncertainty as the expansion of a set of the possible probabilities rather than mean-preserving spread and if we think unemployed worker takes maximin behavior, then it turns out that an increase of Knightian uncertainty shortens the period of job search. Furthermore, an analysis of real option shows that while an increase of risk makes the timing of exercise shorter, an increase of Knightian uncertainty makes it longer. Intuitively, in the job search model, acceptance of job offer avoids uncertainty, but in option model, an exercise of an option makes the agent face uncertainty In addition to these results, we found that under Knightian uncertainty, learning procedure raises the degree of uncertainty on the contrary to our intuition, and axiomatization of a simple and operational form of maximin behavior was obtained. Less
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Research Products
(4 results)
