Introduction to the special issue in honor of Larry Epstein

Abstract

He was elected a Fellow of the Econometric Society in 1989, an Economic Theory Fellow of the Society for the Advancement of Economicy Theory in 2011, and a Member of the American Academy of Arts and Science in 2013, and was awarded the Frisch Medal in 1994.Epstein has made numerous fundamental contributions in microeconomics, decision theory, and mathematical economics. His main research topics focus on how to model individual decision-making under uncertainty. He often adopts an axiomatic approach in abstract models, though always with an eye towards tractability and usefulness for applications, both theoretical and empirical. Besides applications within economics, his work has connections to finance (theoretical and empirical asset pricing), operations research (robust stochastic optimization), probability theory (limit theorems), and statistics (robust inference and hypothesis testing).This special issue contains ten papers contributed by Epstein's former students, coauthors, and fans. These papers are inspired and influenced by Epstein's research. Let me start with the papers related to Epstein's work on ambiguity.Halevy and Ozdenoren (2022) present a theoretical model of decision making in which preferences are defined on both Savage subjective acts and compound objective lotteries. They introduce the concept of two-stage probabilistically sophistication (2SPS), which generalizes the concept of probabilistically sophistication of Machina and Schmeidler (1992). The latter is used as a benchmark for ambiguity neutrality by Epstein (1999). Preferences are 2SPS when the ranking of acts corresponds to a ranking of the respective compound lotteries induced by the acts through the decision maker's subjective belief. This family of preferences includes various theoretical models (e.g., the smooth ambiguity model of Klibanoff et al. (2005)) that have been proposed in the literature to accommodate non-neutral attitude towards ambiguity. The principle B Jianjun Miao