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I show that ambiguity (Knightian uncertainty) and learning about the equity premium can explain the fraction of financial wealth allocated to stocks over the life cycle and the stock market participation puzzle. I assume that individuals are ambiguous about the equity premium and are averse with respect to this ambiguity, which results in a lower optimal allocation to stocks over the life cycle. As agents get older, they learn about the equity premium and increase their allocation to stocks.doi:10.2139/ssrn.1785321 fatcat:zjkdr5peyber5je5klgyu377ba