Work in Progress
Intergenerational Contract under Incomplete Information
Ambiguity Aversion and Fertility Decisions
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Abstract. This paper investigates how ambiguity aversion affects fertility decisions, considering the uncertainty surrounding the benefits of parenthood. We extend the Becker and Barro (1988) fertility model by incorporating ambiguity aversion to capture parents’ decision-making process accurately. We assume that individuals care about their own and children’s well-being (dynastic altruism) and face ambiguity about their children’s future abilities (ambiguity aversion). Using a multiple priors utility framework, we model parents’ preferences as maximizing their minimum expected utility of descendants, focusing on the worst-case scenario for their child’s ability. Our findings suggest that more ambiguity-averse parents tend to have fewer children, as they emphasize the lowest possible outcome. This insight helps explain declining fertility rates and rising childlessness in developed countries, as individuals prioritize predictable outcomes over uncertain returns of parenthood.