We analyze a static partial equilibrium model where the agents are

not only heterogeneous in their beliefs about the return on risky assets

but also in their attitude to it. While some agents in the economy

are subjective utility maximizers others behave ambiguity averse in

the sense of Knight (1921). If ambiguity averse agents meet overly

optimistic subjective utility maximizers in the market lower equity

premia can arise in the equilibrium than in a purely subjective utility

framework.