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You Need to Recognise Ambiguity to Avoid It

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  • Chew Soo Hong
  • Mark Ratchford
  • Jacob S. Sagi

Abstract

After screening for attentiveness and comprehension, we present subjects with Ellsberg's (1961) two‐urn problem using essentially equivalent but representationally complex matrices. High‐comprehension subjects exhibit rates of ambiguity aversion typical of the standard two‐urn problem, while low‐comprehension subjects appear to randomise. In screening, we classify subjects as ‘probability‐minded’ or ‘ambiguity‐minded’, depending on whether they assign probabilities to draws from a card deck of unknown composition. Among high‐comprehension subjects, ‘mindedness’ explains twenty times more variation in ambiguity attitudes than all other demographic characteristics combined. Compared with their ‘probability‐minded’ counterparts, ‘ambiguity‐minded’ subjects are younger and more educated, analytic, and reflective about their choices.

Suggested Citation

  • Chew Soo Hong & Mark Ratchford & Jacob S. Sagi, 2018. "You Need to Recognise Ambiguity to Avoid It," Economic Journal, Royal Economic Society, vol. 128(614), pages 2480-2506, September.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:614:p:2480-2506
    DOI: 10.1111/ecoj.12541
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    Cited by:

    1. Kopylov, Igor, 2021. "Multiple priors and comparative ignorance," Journal of Economic Theory, Elsevier, vol. 191(C).
    2. Sujoy Mukerji & Han N. Ozsoylev & Jean‐Marc Tallon, 2023. "Trading Ambiguity: A Tale Of Two Heterogeneities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(3), pages 1127-1164, August.
    3. Masaki Aoyagi & Takehito Masuda & Naoko Nishimura, 2021. "Strategic Uncertainty and Probabilistic Sophistication," ISER Discussion Paper 1117, Institute of Social and Economic Research, Osaka University.
    4. Ilke Aydogan & Loïc Berger & Valentina Bosetti, 2023. "Unraveling Ambiguity Aversion," Post-Print hal-04370668, HAL.
    5. Dlugosch, Dennis & Horn, Kristian & Wang, Mei, 2023. "New experimental evidence on the relationship between home bias, ambiguity aversion and familiarity heuristics," Journal of Economics and Business, Elsevier, vol. 125.
    6. Mark Schneider & Jonathan W. Leland & Nathaniel T. Wilcox, 2018. "Ambiguity framed," Journal of Risk and Uncertainty, Springer, vol. 57(2), pages 133-151, October.
      • Mark Schneider & Jonathan Leland & Nathaniel T. Wilcox, 2016. "Ambiguity Framed," Working Papers 16-11, Chapman University, Economic Science Institute.
    7. Milo Bianchi & Jean-Marc Tallon, 2019. "Ambiguity Preferences and Portfolio Choices: Evidence from the Field," Management Science, INFORMS, vol. 65(4), pages 1486-1501, April.

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