{'fraction_non_alphanumeric': 0.01059322033898305, 'fraction_numerical': 0.0, 'mean_word_length': 5.342281879194631, 'pattern_counts': {'":': 0, '<': 0, '<?xml version=': 0, '>': 0, 'https://': 0, 'lorem ipsum': 0, 'www.': 0, 'xml': 0}, 'pii_count': 0, 'substrings_counts': 0, 'word_list_counts': {'cursed_substrings.json': 0, 'profanity_word_list.json': 0, 'sexual_word_list.json': 0, 'zh_pornsignals.json': 0}}
Socially Efficient Discounting under Ambiguity Aversion

We consider an economy with an ambiguity-averse representative agent who faces an uncertain consumption growth. We examine the condition under which ambiguity aversion reduces the socially efficient discount rate. We show that ambiguity aversion affects the interest rate in two ways. The first effect is an ambiguity prudence effect similar to the prudence effect that prevails in the expected utility model, but which requires decreasing ambiguity aversion to be signed. Aversion to ambiguity also entails more pessimism. But this pessimistic shift in beliefs generally has an ambiguous effect on the interest rate. We provide sufficient conditions under which ambiguity aversion does indeed decrease the socially efficient discount rate. The calibration of the model tells us that the effect of ambiguity aversion on the way we should discount distant cash flows is potentially large.