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An Experimental Test of Generalized Ambiguity Aversion using Lottery Pricing Tasks

Author

Listed:
  • Michael Bleaney
  • Steven Humphrey

Abstract

We report the results of an experiment which investigates the impact of the manner in which likelihood information is presented to decision-makers on valuations assigned to lotteries. We find that subjects who observe representative sequences of outcomes attach higher valuations to lotteries than those who are given only a verbal description of a probability distribution. We interpret this in terms of a reduction in ambiguity about the possible lottery outcomes. These findings suggest that ambiguity aversion may be a confounding factor in reported experimental violations of expected utility theory based on verbal descriptions of probability distributions. Copyright Springer 2006

Suggested Citation

  • Michael Bleaney & Steven Humphrey, 2006. "An Experimental Test of Generalized Ambiguity Aversion using Lottery Pricing Tasks," Theory and Decision, Springer, vol. 60(2), pages 257-282, May.
    • Handle: RePEc:kap:theord:v:60:y:2006:i:2:p:257-282
    DOI: 10.1007/s11238-005-4573-1
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    Citations

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    Cited by:

    1. repec:cup:judgdm:v:3:y:2008:i:7:p:528-546 is not listed on IDEAS
    2. Michael H. Birnbaum & Kathleen Johnson & Jay-Lee Longbottom, 2008. "Tests of Cumulative Prospect Theory with graphical displays of probability," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 3(7), pages 528-546, October.
    3. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: An Annotated Bibliography," Working Papers 1110, College of the Holy Cross, Department of Economics.

    More about this item

    Keywords

    ambiguity; probability learning; competence and comprehension hypotheses; experiment; lottery valuations; D81; C91;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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