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Ambiguity in Individual Choice and Market Environments: On the Importance of Comparative Ignorance

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  • Jonathan E. Alevy

    ()
    (Department of Economics, University of Alaska Anchorage)

Abstract

After Ellsberg’s thought experiments brought focus to the relevance of missing information for choice, extensive efforts have been made to understand ambiguity theoretically and empirically (Ellsberg 1961). Fox and Tversky (1995) make an important contribution to understanding behavioral responses to ambiguity. In an individual choice setting they demonstrate that an aversion to ambiguous lotteries arises only when a comparison to unambiguous lotteries is available. The current study advances this literature by exploring the importance of Fox and Tversky’s finding for market outcomes and finds support for their Comparative Ignorance Hypothesis in the market setting.

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File URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201104.pdf
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Bibliographic Info

Paper provided by University of Alaska Anchorage, Department of Economics in its series Working Papers with number 2011-04.

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Date of creation: 2011
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Handle: RePEc:ala:wpaper:2011-04

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Web page: http://www.cbpp.uaa.alaska.edu/CBPPHome/DepartmentsandMajors/Economics.aspx
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Keywords: ambiguity; asset market experiment; comparitive ignorance;

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Cited by:
  1. Qiu, Jianying & Weitzel, Utz, 2011. "Reference dependent ambiguity aversion: theory and experiment," MPRA Paper 35289, University Library of Munich, Germany, revised 08 Dec 2011.

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