Tomasz Strzalecki email: tomasz_strzalecki@harvard.edu Curriculum Vitae

ABSTRACT. As demonstrated by the email game of Rubinstein (1989), the predictions of the standard models of game theory are sensitive to assumptions about the fine details of the higher order beliefs. This paper shows that models of bounded depth of reasoning based on level-k thinking, or cognitive hierarchy, make predictions that are independent of the tail assumptions on the higher order beliefs. In addition to this finding, the tools developed in this paper offer a new direction for the analysis of level-k thinking models and their applications to various economic settings.

ABSTRACT. Models of ambiguity aversion have recently found many applications in dynamic settings. This paper shows that the modeling choices that are being made in the domain of ambiguity aversion influence the set of modeling choices available in the domain of timing attitudes, in particular the preferences for the timing of the resolution of uncertainty, as defined by the classic work of Kreps and Porteus (1978). The main result of the paper is that the only model of ambiguity aversion that exhibits indifference to timing is the maxmin expected utility of Gilboa and Schmeidler (1989). This paper also examines the structure of the timing nonindifference implied by the other commonly used models of ambiguity aversion. The interdependence of ambiguity and timing that this paper identifies is of interest both conceptually and practically—especially for economists using these models in applications.

ABSTRACT. This paper axiomatizes the robust control criterion of multiplier preferences introduced by Hansen and Sargent (2001). The axiomatization relates multiplier preferences to other classes of preferences studied in decision theory. Some properties of multiplier preferences are generalized to the broader class of variational preferences, recently introduced by Maccheroni, Marinacci and Rustichini (2006). The paper also establishes a link between the parameters of the multiplier criterion and the observable behavior of the agent. This link enables measurement of the parameters on the basis of observable choice data and provides a useful tool for applications.

ABSTRACT. This paper shows that in the class of variational preferences the notion of probabilistic sophistication is equivalent to expected utility under an assumption that probabilities agree on at least one event. This establishes the extent to which the variational preferences can be used for modeling the Allais paradox.

ABSTRACT. We study a definition of subjective beliefs applicable to preferences that allow for the perception of ambiguity, and provide a characterization of such beliefs in terms of market behavior. Using this definition, we derive necessary and sufficient conditions for the efficiency of ex-ante trade, and show that these conditions follow from the fundamental welfare theorems. When aggregate uncertainty is absent, our results show that full insurance is efficient if and only if agents share some common subjective beliefs. Our results hold for a general class of convex preferences, which contains many functional forms used in applications involving ambiguity and ambiguity aversion. We show how our results can be articulated in the language of these functional forms, confirming results existing in the literature, generating new results, and providing a useful tool for applications.