Ellsberg Paradox and Second-order Preference Theories on Ambiguity: Some New Experimental Evidence
AbstractWe study the two-color problem by Ellsberg (1961) with the modification that the decision maker draws twice with replacement and a different color wins in each draw. The 50-50 risky urn turns out to have the highest risk conceivable among all prospects including the ambiguous one, while all feasible color distributions are mean-preserving spreads to one another. We show that the well-known second-order sophisticated theories like MEU, CEU, and REU as well as Savage’s first-order theory of SEU share the same predictions in our design, for any first-order risk attitude. Yet, we observe that substantial numbers of subjects violate the theory predictions even in this simple design.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 28531.
Date of creation: 22 Jan 2011
Date of revision:
Ellsberg paradox; Ambiguity; Second-order risk; Second-order preference theory; Experiment;
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-2011-02-12 (All new papers)
- NEP-EXP-2011-02-12 (Experimental Economics)
- NEP-HPE-2011-02-12 (History & Philosophy of Economics)
- NEP-NEU-2011-02-12 (Neuroeconomics)
- NEP-UPT-2011-02-12 (Utility Models & Prospect Theory)
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