On the Smooth Ambiguity Model: A Reply

Abstract

Epstein (2009) describes three Ellsberg-style thought experiments and argues that they pose difficulties for the smooth ambiguity model of decision making under uncertainty developed by Klibanoff, Marinacci and Mukerji (2005). We revisit these thought exeperiments and find, to the contrary, that they either point to strengths of the smooth ambiguity model compared to other models, such as the maximum expected utility model (Gilboa and Schmeidler, 1989), or, in the case of one thought experiment, raise criticisms that apply equally to a broad range of current ambiguity models.