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Choice under aggregate uncertainty

Al-Najjar, Nabil I. and Pomatto, Luciano (2016) Choice under aggregate uncertainty. Theory and Decision, 80 (2). pp. 187-209. ISSN 0040-5833. doi:10.1007/s11238-015-9504-1.

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We provide a simple model to measure the impact of aggregate risks. We consider agents whose rankings of lotteries over vectors of outcomes satisfy expected utility and separability. Such rankings are characterized in terms of aggregative utilities that measure sensitivity to aggregate uncertainty in a straightforward way. We consider applications to models of product variety, portfolio choice, and public attitudes towards catastrophic risks. The framework lends support to precautionary measures that penalize policies for exposure to correlation. The model rationalizes a number of behavioral and policy patterns as attempts to hedge against aggregate uncertainty.

Item Type:Article
Related URLs:
URLURL TypeDescription ReadCube access
Pomatto, Luciano0000-0002-4331-8436
Additional Information:© 2015 Springer Science+Business Media New York. First Online: 24 June 2015. We thank Robert Gary-Bobo, Yoram Halevy, Chuck Manski, Mallesh Pai, and Phil Reny for their comments. We also thank Hasat Cakkalkurt for her research assistance.
Subject Keywords:Aggregate risks; Risk and uncertainty
Issue or Number:2
Record Number:CaltechAUTHORS:20190405-093853327
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Official Citation:Al-Najjar, N.I. & Pomatto, L. Theory Decis (2016) 80: 187.
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:94495
Deposited By: Tony Diaz
Deposited On:05 Apr 2019 16:45
Last Modified:16 Nov 2021 17:05

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