Arbeitspapier
Consumption of durable goods under ambiguity
The focus of this paper is to analyze the effect that ambiguity will have on the buyer's reservation price and the value of the option to purchase the durable good with an embedded option to resell it. The agent is assumed to be risk neutral and ambiguity averse. The problem is formulated as an optimal stopping problem with multiple priors in continuous time with infinite horizon. Uncertainty comes from prices, which is summarized in a state variable that follows a Brownian motion. Preferences have a multiple-prior utility representation where the set of priors consist of a family of Brownian motions with unknown drift and common variance. We show that the direction of the change in the buyer's reservation price depends on the parametrization of the model and that the value of the embedded option is decreasing in the perceived level of ambiguity.
- Sprache
-
Englisch
- Erschienen in
-
Series: Working Papers ; No. 2014-02
- Klassifikation
-
Wirtschaft
Optimization Techniques; Programming Models; Dynamic Analysis
Criteria for Decision-Making under Risk and Uncertainty
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
- Thema
-
ambiguity
optimal stopping
embedded option
durable goods
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Moreno, Othón M.
- Ereignis
-
Veröffentlichung
- (wer)
-
Banco de México
- (wo)
-
Ciudad de México
- (wann)
-
2014
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:42 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Moreno, Othón M.
- Banco de México
Entstanden
- 2014
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