Learning Under Ambiguity

This paper considers learning when the distinction between risk and ambiguity matters. It first describes thought experiments, dynamic variants of those provided by Ellsberg, that highlight a sense in which the Bayesian learning model is extreme - it models agents who are implausibly ambitious about what they can learn in complicated environments. The paper then provides a generalization of the Bayesian model that accommodates the intuitive choices in the thought experiments. In particular, the model allows decision-makers’ confidence about the environment to change — along with beliefs — as they learn. A calibrated portfolio choice application shows how this property induces a trend towards more stock market participation and investment.ambiguity, learning, noisy signals, ambiguous signals, quality information, portfolio choice, portfolio diversification, Ellsberg Paradox

Learning Under Ambiguity

This paper considers learning when the distinction between risk and ambiguity (Knightian uncertainty) matters. Working within the framework of recursive multiple-priors utility, the paper formulates a counterpart of the Bayesian model of learning about an uncertain parameter from conditionally i.i.d. signals. Ambiguous signals capture responses to information that cannot be captured by noisy signals. They induce nonmonotonic changes in agent confidence and prevent ambiguity from vanishing in the limit. In a dynamic portfolio choice model, learning about ambiguous returns leads to endogenous stock market participation costs that depend on past market performance. Hedging of ambiguity provides a new reason why the investment horizon matters for portfolio choice.ambiguity, learning, noisy signals, ambiguous signals, quality information, portfolio choice, portfolio diversification, Ellsberg Paradox

Ambiguity, Information Quality and Asset Pricing

When ambiguity averse investors process news of uncertain quality, they act as if they take a worst-case assessment of quality. As a result, they react more strongly to bad news than to good news. They also dislike assets for which information quality is poor, especially when the underlying fundamentals are volatile. These effects induce skewness in asset returns and induce ambiguity premia that depend on idiosyncratic risk in fundamentals. Moreover, shocks to information quality can have persistent negative effects on prices even if fundamentals do not change. This helps to explain the reaction of markets to events like 9/11/2001.ambiguity, information quality, asset pricing, idiosyncratic risk, negatively skewed returns

Efficient Sparse Clustering of High-Dimensional Non-spherical Gaussian Mixtures

We consider the problem of clustering data points in high dimensions, i.e. when the number of data points may be much smaller than the number of dimensions. Specifically, we consider a Gaussian mixture model (GMM) with non-spherical Gaussian components, where the clusters are distinguished by only a few relevant dimensions. The method we propose is a combination of a recent approach for learning parameters of a Gaussian mixture model and sparse linear discriminant analysis (LDA). In addition to cluster assignments, the method returns an estimate of the set of features relevant for clustering. Our results indicate that the sample complexity of clustering depends on the sparsity of the relevant feature set, while only scaling logarithmically with the ambient dimension. Additionally, we require much milder assumptions than existing work on clustering in high dimensions. In particular, we do not require spherical clusters nor necessitate mean separation along relevant dimensions.Comment: 11 pages, 1 figur

New Spontaneous Model of Fibrodysplasia Ossificans Progressiva

We report the first known example of spontaneous, naturally occurring fibrodysplasia ossificans progressiva (FOP) in a mammal. The Southeast Asian mouse deer of the genus _Tragulus_ (Artiodactyla: Tragulidae) have an osseous sheath covering the lower back and upper thigh region consistent with the clinical definition of FOP. This heterotophic bone deposition is sex related apparently with a genetic basis - it only occurs in males and is lacking in females; it is present in all adults males, including both wild obtained and zoo bred animals. _Tragulus_ may offer the opportunity to examine many of the disease's most significant attributes experimentally

CAIS Program Structure and Performance: Evidence from Ontario

The Canadian Agricultural Income Stabilization (CAIS) program was approved in late 2003. It now serves as Canada’s sole farm safety net program, having replaced the Net Income Stabilization Account (NISA), Canadian Farm Income Program (CFIP), and provincial companion programs. However, the mechanisms of operation and actual performance of CAIS in providing stability to farm incomes are relatively unknown. In particular, to develop expectations of future farm costs and returns and to determine their support for CAIS as the sole safety net under the federal-provincial Agricultural Policy Framework (APF), farmers and their representatives need a concrete understanding of how CAIS can be expected to work relative to its predecessors.Agricultural and Food Policy,

Firm-level Forces Underlying Concentration in Agriculture

Although industry concentration in agriculture has a long history, the analysis of concentration and normative recommendations on it are a source of ongoing controversy in agricultural economics. The received approaches to the study of industry concentration are based on the structure-conduct-performance model or on the “new†empirical industrial organization literature which explicitly models competitive behaviour. However, each of these approaches wants for analysis of the specific firm-level decision processes that produce its predicted outcome. An alternative approach is to analyze the internal motivations for vertical and horizontal integration that exist within firms and that ultimately result in market concentration. From this perspective, market concentration results from more than simply competition among firms for economic rents.Environmental Economics and Policy,

Disappearing Private Reputations in Long-Run Relationships

For games of public reputation with uncertainty over types and imperfect public monitoring, Cripps, Mailath, and Samuelson (2004) showed that an informed player facing short-lived uninformed opponents cannot maintain a permanent reputation for playing a strategy that is not part of an equilibrium of the game without uncertainty over types. This paper extends that result to games in which the uninformed player is long-lived and has private beliefs, so that the informed player’s reputation is private. We also show that the rate at which reputations disappear is uniform across equilibria and that reputations disappear in sufficiently long discounted finitely-repeated games.Reputation, Imperfect Monitoring, Repeated Games, Commitment, Private Beliefs

FIRM-LEVEL FORCES UNDERLYING CONCENTRATION IN AGRICULTURE

Agribusiness,