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The effect of elicitation methods on ambiguity aversion: an experimental investigation

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Author Info

  • Anna Maffioletti

    () (University of Turin)

  • Ulrich Schmidt

    () (University of Kiel & Kiel Institute for the World Economy)

  • Carsten Schröder

    () (University of Kiel)

Abstract

In this paper we elicit preferences for the classical three-color Ellsberg Paradax employing three different methods, choices, minimal selling prices and maximal buying prices. The resulting data reveal a high frequency of preference reversals which have not been analyzed before in choice under uncertainty. Moreover, we analyze the effect of elicitation methods on the degree of ambiguity aversion. While there is no apparent difference in the attitude towards ambiguity between selling and buying prices we observe a rather distinct pattern of behavior for choices: Compared to choices, eliciting preferences by pricing tasks decreases the number of subjects being ambiguity averse in both tasks and increases the number of subjects being ambiguity neutral or prone. We argue that this difference between pricing and choice supports the hypothesis of comparative ignorance.

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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I2-P14.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 2 ()
Pages: 638-643

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Handle: RePEc:ebl:ecbull:eb-09-00077

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Keywords: Ellsberg Paradox; ambiguity aversion; preference reversal; comparative ignorance;

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References

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  1. Hogarth, Robin M & Kunreuther, Howard, 1989. " Risk, Ambiguity, and Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 5-35, April.
  2. Camerer, Colin & Kunreuther, Howard, 1989. " Experimental Markets for Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 265-99, September.
  3. Fox, Craig R & Tversky, Amos, 1995. "Ambiguity Aversion and Comparative Ignorance," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 585-603, August.
  4. Ulrich Schmidt & John D. Hey, 2004. "Are Preference Reversals Errors? An Experimental Investigation," Journal of Risk and Uncertainty, Springer, vol. 29(3), pages 207-218, December.
  5. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, vol. 80(1), pages 204-17, March.
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Cited by:
  1. Jonathan E. Alevy, 2011. "Ambiguity in Individual Choice and Market Environments: On the Importance of Comparative Ignorance," Working Papers 2011-04, University of Alaska Anchorage, Department of Economics.

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