This paper studies the implications of model uncertainty for wealth distribution in a tractable general equilibrium model with a borrowing constraint and robustness à la Hansen and Sargent (2008). Households confront model uncertainty about the process driving the return of the risky asset, and they choose robust policies.
Financial markets can experience sudden and extreme downward movements. Investors are highly concerned about the performance of their assets in such scenarios. Some assets perform badly in a downturn in the market; others have milder reactions.