This book is an exploration of the ubiquity of ambiguity in
decision-making under uncertainty. It presents various essays on
behavioral economics and behavioral finance that draw on the theory of
Black Swans (Taleb 2010), which argues for a distinction between
unprecedented events in our past and unpredictable events in our future.
The defining property of Black Swan random events is that they are
unpredictable, i.e., highly unlikely random events. In this text,
Mandelbrot's (1972) operational definition of risky random unpredictable
events is extended to Black Swan assets - assets for which the
cumulative probability distribution or conditional probability
distribution of random future asset returns is a power distribution.
Ambiguous assets are assets for which the uncertainties of future
returns are not risks. Consequently, there are two disjoint classes of
Black Swan assets: Risky Black Swan assets and Ambiguous Black Swan
assets, a new class of ambiguous assets with unpredictable random future
outcomes.
The text is divided into two parts, the first of which focuses on
affective moods, introduces affective utility functions and discusses
the ambiguity of Black Swans. The second part, which shifts the
spotlight to affective equilibrium in asset markets, features chapters
on affective portfolio analysis and Walrasian and Gorman Polar Form
Equilibrium Inequalities. In order to gain the most from the book,
readers should have completed the standard introductory graduate courses
on microeconomics, behavioral finance, and convex optimization. The book
is intended for advanced undergraduates, graduate students and post docs
specializing in economic theory, experimental economics, finance,
mathematics, computer science or data analysis.
