2016/05/14 by Patrick Beißner, Beissner, Patrick, Frank Riedel +1
Decision Sciences · Economics, Econometrics and Finance · #Decision-Making and Behavioral Economics #Economic theories and models #FOS: Economics and business #General Economics (econ.GN) #Monetary Policy and Economic Impact
paper · pdf · doi:10.48550/arxiv.1605.04385
openalex publication_date 2016/05/14 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/01
Knightian uncertainty leads naturally to nonlinear expectations. We introduce a corresponding equilibrium concept with sublinear prices and establish their existence. In general, such equilibria lead to Pareto inefficiency and coincide with Arrow--Debreu equilibria only if the values of net trades are ambiguity--free in the mean. Without aggregate uncertainty, inefficiencies arise generically. We introduce a constrained efficiency concept, uncertainty--neutral efficiency and show that Knight--Walras equilibrium allocations are efficient in this constrained sense. Arrow--Debreu equilibria turn out to be non--robust with respect to the introduction of Knightian uncertainty.