Trojani, FabioFabioTrojaniVanini, PaoloPaoloVanini2023-04-132023-04-132002-03-01https://www.alexandria.unisg.ch/handle/20.500.14171/7137310.1016/S0165-1889(00)00054-3The paper presents a robust version of a simple two-assets Merton (1969, Review of Economics and Statistics 51, 247-57) model where the optimal choices and the implied shadow market prices of risk for a representative robust decision maker (RDM) can be easily described. With the exception of the log-utility case, precautionary behaviour is induced in the optimal consumption-investment rules through a substitution of investment in risky assets with both current consumption and riskless saving. For the log-utility case, precautionary behaviour arises only through a substitution between risky and riskless assets. On the financial side, the decomposition of the market price of risk in a standard consumption based component and a further price for model uncertainty risk (which is positively related to the robustness parameter) is independent of the underlying risk aversion parameter.enMerton's modelKnightian uncertaintyModel contaminationModel misspecificationRobust decision-makingjournal article