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Hedging, ambiguity, and the reversal of order axiom

Author

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  • Oechssler, Jörg
  • Rau, Hannes
  • Roomets, Alex

Abstract

We ran experiments that gave subjects a straight-forward and simple opportunity to hedge away ambiguity in an Ellsberg-style experiment. Subjects had to make bets on the combined outcomes of a fair coin and a draw from an ambiguous urn. By modifying the timing of the draw, coin flip, and decision, we are able to test the reversal-of-order axiom. Our main result is that the reversal-of-order axiom seems to hold. We also confirm low levels of ambiguity hedging despite the relative obviousness of the opportunity.

Suggested Citation

  • Oechssler, Jörg & Rau, Hannes & Roomets, Alex, 2019. "Hedging, ambiguity, and the reversal of order axiom," Games and Economic Behavior, Elsevier, vol. 117(C), pages 380-387.
  • Handle: RePEc:eee:gamebe:v:117:y:2019:i:c:p:380-387
    DOI: 10.1016/j.geb.2019.07.007
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    References listed on IDEAS

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    Cited by:

    1. Oechssler, Jörg & Roomets, Alex, 2019. "Savage vs. Anscombe-Aumann: An experimental investigation of ambiguity frameworks," Working Papers 0672, University of Heidelberg, Department of Economics.

    More about this item

    Keywords

    Ellsberg paradox; Hedging; Reversal of order axiom; Experiment;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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