How do people cope with an ambiguous situation when it becomes even more ambiguous?
AbstractAs illustrated by the famous Ellsberg paradox, many subjects prefer to bet on events with known rather than with unknown probabilities, i.e., they are ambiguity averse. In an experiment, we examine subjects’ choices when there is an additional source of ambiguity, namely, when they do not know how much money they can win. Using a standard independence assumption, we show that ambiguity averse subjects should continue to strictly prefer the urn with known probabilities. In contrast, our results show that many subjects no longer exhibit such a strict preference. This should have important ramifications for modeling ambiguity aversion.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0528.
Date of creation: 21 Jun 2012
Date of revision:
Note: This paper is part of http://archiv.ub.uni-heidelberg.de/volltextserver/view/schriftenreihen/sr-3.html
Contact details of provider:
Postal: Grabengasse 14, D-69117 Heidelberg
Phone: +49-6221-54 2905
Fax: +49-6221-54 2914
Web page: http://www.awi.uni-heidelberg.de/
More information through EDIRC
ambiguity aversion; uncertainty; minmax-expected utility;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-01 (All new papers)
- NEP-CBE-2012-07-01 (Cognitive & Behavioural Economics)
- NEP-EVO-2012-07-01 (Evolutionary Economics)
- NEP-EXP-2012-07-01 (Experimental Economics)
- NEP-NEU-2012-07-01 (Neuroeconomics)
- NEP-UPT-2012-07-01 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dominiak, Adam & Duersch, Peter & Lefort, Jean-Philippe, 2012.
"A dynamic Ellsberg urn experiment,"
Games and Economic Behavior,
Elsevier, vol. 75(2), pages 625-638.
- Lefort, Jean-Philippe & Dominiak, Adam & Dürsch, Peter, 2012. "A Dynamic Ellsberg Urn Experiment," Open Access publications from UniversitÃ© Paris-Dauphine urn:hdl:123456789/7357, Université Paris-Dauphine.
- Dominiak, Adam & Dürsch, Peter & Lefort, Jean-Philippe, 2009. "A Dynamic Ellsberg Urn Experiment," Working Papers 0487, University of Heidelberg, Department of Economics.
- Dominiak, Adam & Dürsch, Peter & Lefort, Jean-Philippe, 2012. "A dynamic Ellsberg urn experiment," Open Access publications from UniversitÃ© Paris-Dauphine urn:hdl:123456789/7333, Université Paris-Dauphine.
- : Ebbe Hendon & Hans Jørgen Jacobsen & Birgitte Sloth & Torben Tranæs, 1993.
"The Product of Capacities and Belief Functions,"
93-04, University of Copenhagen. Department of Economics.
- Cohen, M. & Gilboa, I. & Jaffray, J.Y. & Schmeidler, D., 2000. "An experimental study of updating ambiguous beliefs," Risk, Decision and Policy, Cambridge University Press, vol. 5(02), pages 123-133, June.
- Eichberger, J. & Kelsey, D., 1993.
"Uncertainty Aversion and Dynamic Consistency,"
93-08, Department of Economics, University of Birmingham.
- Yoram Halevy, 2007.
"Ellsberg Revisited: An Experimental Study,"
Econometric Society, vol. 75(2), pages 503-536, 03.
- Eichberger, J. & Kelsey, D., 1995.
"Uncertainty Aversion and Preferences for Randomisation,"
Department of Economics - Working Papers Series
476, The University of Melbourne.
- Eichberger, Jurgen & Kelsey, David, 1996. "Uncertainty Aversion and Preference for Randomisation," Journal of Economic Theory, Elsevier, vol. 71(1), pages 31-43, October.
- James C. Cox & Vjollca Sadiraj & Ulrich Schmidt, 2011.
"Paradoxes and Mechanisms for Choice under Risk,"
Experimental Economics Center Working Paper Series
2011-07, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised May 2012.
- Jurgen Eichberger & Simon Grant & David Kelsey, 2006.
"Updating Choquet Beliefs,"
0607, Exeter University, Department of Economics.
- Schnedler, Wendelin & Dominiak, Adam, 2008. "Uncertainty Aversion and Preference for Randomization," Sonderforschungsbereich 504 Publications 08-39, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
- Christoph Vanberg, 2008. "Why Do People Keep Their Promises? An Experimental Test of Two Explanations -super-1," Econometrica, Econometric Society, vol. 76(6), pages 1467-1480, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gabi Rauscher).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.