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Characterizing ambiguity attitudes using model uncertainty

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  • Loïc Berger

    (IÉSEG School Of Management [Puteaux], EIEE - European Institute on Economics and the Environment, CMCC - Centro Euro-Mediterraneo per i Cambiamenti Climatici [Bologna], LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Valentina Bosetti

    (Bocconi University [Milan, Italy])

Abstract

We report the results of an experiment eliciting individuals' attitudes toward risk and model uncertainty. Using a joint elicitation procedure, we then precisely quantify the strength of individuals' attitude toward ambiguity in the context of the smooth model and characterize its main properties. Our results provide empirical evidence of decreasing absolute ambiguity aversion (DAAA) and constant relative ambiguity aversion (CRAA). These results shed new light on the way ambiguity attitudes may affect important decisions, such as the choice of health insurance policies or the optimal investment strategy in the face of climate change.

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  • Loïc Berger & Valentina Bosetti, 2020. "Characterizing ambiguity attitudes using model uncertainty," Post-Print hal-03031502, HAL.
    • Handle: RePEc:hal:journl:hal-03031502
    DOI: 10.1016/j.jebo.2020.02.014
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    Cited by:

    1. Loïc Berger & Louis Eeckhoudt, 2020. "Risk, Ambiguity, And The Value Of Diversification," Working Papers hal-02910906, HAL.
    2. Ilke Aydogan & Loïc Berger & Vincent Théroude, 2023. "More Ambiguous or More Complex? An Investigation of Individual Preferences under Uncertainty," Working Papers of BETA 2023-10, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Loic Berger, 2021. "What Is Partial Ambiguity?," Working Papers 2021-iRisk-01, IESEG School of Management.
    4. Klibanoff, Peter & Mukerji, Sujoy & Seo, Kyoungwon & Stanca, Lorenzo, 2022. "Foundations of ambiguity models under symmetry: α-MEU and smooth ambiguity," Journal of Economic Theory, Elsevier, vol. 199(C).
    5. Loïc Berger & Louis Eeckhoudt, 2021. "Risk, ambiguity, and the value of diversification," Post-Print hal-02910906, HAL.
    6. Ilke AYDOGAN & Loïc BERGER & Vincent THEROUDE, 2023. "More Ambiguous or More Complex? An Investigation of Individual Preferences under Model Uncertainty," Working Papers 2023-iRisk-02, IESEG School of Management.
    7. Loïc Berger & Louis Eeckhoudt, 2021. "Risk, Ambiguity, and the Value of Diversification," Management Science, INFORMS, vol. 67(3), pages 1639-1647, March.
    8. Peter Klibanoff & Sujoy Mukerji & Kyoungwon Seo & Lorenzo Staca, 2021. "Foundations of ambiguity models under symmetry: α-MEU and smooth ambiguity," Working Papers 922, Queen Mary University of London, School of Economics and Finance.
    9. Soheil Ghili & Peter Klibanoff, 2021. "If It Is Surely Better, Do It More? Implications for Preferences Under Ambiguity," Management Science, INFORMS, vol. 67(12), pages 7619-7636, December.

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    More about this item

    Keywords

    Ambiguity aversion; Laboratory experiment; Non-expected utility; Subjective probabilities; Decreasing absolute ambiguity aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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