Ambiguity,Learning And Exhaustive Resource Price

We study the pricing problem of exhaustive resource which is so called "cake eating" problem. In other words, how the producer extract resource to maximize her utility in the planing horizon. The volatility of price in resource markets and a series of cake eating literature motivated us to seek a theoretical mechanism behind this.In comparison to the previous series of cake eating literature, our study consid-ers eating a cake of ambiguous size, that is the size of cake is uncertain and subject to unknown distributions. An advantage of introducing ambiguity into the pric-ing problem is that keeping the risk aversion induced from the comparison of the model and real-world data in a reasonable scope. In order to investigate the effect of ambiguity on resource price, we adopt the generalized recursive smooth am-biguity utility to represent the resource owners’ preference. Another feature of the model is that we study how learning under ambiguity affects price dynamics. Specifically, how the producer update her belief about the reserve and demand of resource with the information arrived and we study the potential effect of this behavior on resource price. Our results show ambiguity aversion can effectively raise resource price while learning have counter-cyclical effects on resource price.