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

Author

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  • 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)

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.

Suggested Citation

  • Aurélien Baillon & Han Bleichrodt & Umut Keskin & Olivier L'Haridon & Author-Name: Chen Li, 2013. "Learning under ambiguity: An experiment using initial public offerings on a stock market," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201331, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:201331
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    Cited by:

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    3. Konstantinos Georgalos, 2016. "Dynamic decision making under ambiguity," Working Papers 112111041, Lancaster University Management School, Economics Department.
    4. Foster, Gigi & Frijters, Paul & Schaffner, Markus & Torgler, Benno, 2018. "Expectation formation in an evolving game of uncertainty: New experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 154(C), pages 379-405.
    5. repec:zbw:rwirep:0488 is not listed on IDEAS
    6. 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.
    7. Bergheim, Ralf, 2014. "Information Acquisition and Decisions under Risk and Ambiguity," Ruhr Economic Papers 488, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Dogucan Mazicioglu & Jason R. W. Merrick, 2018. "Behavioral Modeling of Adversaries with Multiple Objectives in Counterterrorism," Risk Analysis, John Wiley & Sons, vol. 38(5), pages 962-977, May.
    9. James R. Bland & Yaroslav Rosokha, 2021. "Learning under uncertainty with multiple priors: experimental investigation," Journal of Risk and Uncertainty, Springer, vol. 62(2), pages 157-176, April.
    10. Stephen G. Dimmock & Roy Kouwenberg & Peter P. Wakker, 2016. "Ambiguity Attitudes in a Large Representative Sample," Management Science, INFORMS, vol. 62(5), pages 1363-1380, May.

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    More about this item

    Keywords

    ambiguity; learning; updating; neo-additive weighting;
    All these keywords.

    JEL classification:

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

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