Theory and Decision 74 (2):183-217 (2013)

Abstract
We survey the literature that has explored the implications of decision-making under ambiguity for financial market outcomes, such as portfolio choice and equilibrium asset prices. This ambiguity literature has led to a number of significant advances in our ability to rationalize empirical features of asset returns and portfolio decisions, such as the failure of the two-fund separation theorem in portfolio decisions, the modest exposure to risky securities observed for a majority of investors, the home equity preference in international portfolio diversification, the excess volatility of asset returns, the equity premium and the risk-free rate puzzles, and the occurrence of trading break-downs.
Keywords Ambiguity  Ambiguity-aversion  Participation  Liquidity  Asset pricing
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DOI 10.1007/s11238-012-9343-2
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Risk, Uncertainty and Profit.Frank Knight - 1921 - University of Chicago Press.
A Treatise on Probability.Harry T. Costello - 1923 - Journal of Philosophy 20 (11):301-306.
Theory of Games and Economic Behavior.David Hawkins - 1945 - Philosophy of Science 12 (3):221-227.
Robustness.Lars Peter Hansen & Thomas J. Sargent - 2007 - Princeton University Press.

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