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Learning under ambiguity: An experiment using initial public offerings on a stock market

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Author Info

  • Aurélien Baillon

    (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE), the Netherlands)

  • Han Bleichrodt

    (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE), the Netherlands)

  • Umut Keskin

    (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE), the Netherlands)

  • Olivier L'Haridon

    (CREM UMR CNRS 6211, University of Rennes 1, France)

  • Author-Name: Chen Li

    (Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE), the Netherlands)

Registered author(s):

    Abstract

    This paper studies the effect of learning new information on decision under uncertainty.Using ambiguity models, we show the effect of learning on beliefs and ambiguity attitudes. We develop a new method to correct beliefs for ambiguity attitudes and decompose ambiguity attitudes into pessimism (capturing ambiguity aversion) and likelihood insensitivity. We apply our method in an experiment using initial public offerings (IPOs) on the New York Stock Exchange. IPOs provide a natural decision context in which no prior information on returns is available. We found that likelihood insensitivity decreased with information, but pessimism was unaffected. Subjects moved in the direction of expected utility with more information, but significant deviations remained. Subjective probabilities,corrected for ambiguity attitudes, were well calibrated and close to market data.

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    Bibliographic Info

    Paper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 201331.

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    Date of creation: Aug 2013
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    Handle: RePEc:tut:cremwp:201331

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    Postal: CREM (UMR CNRS 6211) – Faculty of Economics, 7 place Hoche, 35065 RENNES Cedex
    Phone: 02 23 23 35 47
    Fax: (33) 2 23 23 35 99
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    Web page: http://crem.univ-rennes1.fr/
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    Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France
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    Related research

    Keywords: ambiguity; learning; updating; neo-additive weighting;

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    References

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    Cited by:
    1. Ralf Bergheim, 2014. "Information Acquisition and Decisions under Risk and Ambiguity," Ruhr Economic Papers 0488, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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