Ambiguity in Individual Choice and Market Environments: On the Importance of Comparative Ignorance
AbstractAfter 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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Bibliographic InfoPaper provided by University of Alaska Anchorage, Department of Economics in its series Working Papers with number 2011-04.
Date of creation: 2011
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Web page: http://www.cbpp.uaa.alaska.edu/CBPPHome/DepartmentsandMajors/Economics.aspx
More information through EDIRC
ambiguity; asset market experiment; comparitive ignorance;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-29 (All new papers)
- NEP-EXP-2011-08-29 (Experimental Economics)
- NEP-MIC-2011-08-29 (Microeconomics)
- NEP-NEU-2011-08-29 (Neuroeconomics)
- NEP-UPT-2011-08-29 (Utility Models & Prospect Theory)
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