IDEAS home Printed from https://ideas.repec.org/a/eee/insuma/v62y2015icp257-269.html
   My bibliography  Save this article

Comparative ambiguity aversion and downside ambiguity aversion

Author

Listed:
  • Huang, Yi-Chieh
  • Tzeng, Larry Y.
  • Zhao, Lin

Abstract

This paper first defines an increase in ambiguity and an increase in downside ambiguity. We then provide comparative criteria for ambiguity aversion and downside ambiguity aversion. Different from the finding that the comparative criterion for risk aversion is variant with the measure of the premium to reduce risks, we show that the criteria remain the same, whether the premiums to reduce ambiguity and downside ambiguity are measured by utility or money. Under the criteria, a more ambiguity-averse (downside-ambiguity-averse) individual is shown to spend more effort in reducing ambiguity (downside ambiguity) than a less ambiguity-averse (downside-ambiguity-averse) individual.

Suggested Citation

  • Huang, Yi-Chieh & Tzeng, Larry Y. & Zhao, Lin, 2015. "Comparative ambiguity aversion and downside ambiguity aversion," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 257-269.
    • Handle: RePEc:eee:insuma:v:62:y:2015:i:c:p:257-269
    DOI: 10.1016/j.insmatheco.2015.04.002
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0167668715000657
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.insmatheco.2015.04.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gary Charness & Edi Karni & Dan Levin, 2013. "Ambiguity attitudes and social interactions: An experimental investigation," Journal of Risk and Uncertainty, Springer, vol. 46(1), pages 1-25, February.
    2. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2011. "Definitions of ambiguous events and the smooth ambiguity model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 399-424, October.
    3. Modica, Salvatore & Scarsini, Marco, 2005. "A note on comparative downside risk aversion," Journal of Economic Theory, Elsevier, vol. 122(2), pages 267-271, June.
    4. Hideki Iwaki & Yusuke Osaki, 2014. "The dual theory of the smooth ambiguity model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 56(2), pages 275-289, June.
    5. Denuit, Michel M. & Eeckhoudt, Louis, 2010. "Stronger measures of higher-order risk attitudes," Journal of Economic Theory, Elsevier, vol. 145(5), pages 2027-2036, September.
    6. Bruno Jullien & Bernard Salanié & François Salanié, 1999. "Should More Risk-Averse Agents Exert More Effort?," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 24(1), pages 19-28, June.
    7. Klibanoff, Peter & Marinacci, Massimo & Mukerji, Sujoy, 2009. "Recursive smooth ambiguity preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 930-976, May.
    8. Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M. & Montrucchio, L., 2011. "Uncertainty averse preferences," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1275-1330, July.
    9. Louis Eeckhoudt & Harris Schlesinger, 2006. "Putting Risk in Its Proper Place," American Economic Review, American Economic Association, vol. 96(1), pages 280-289, March.
    10. Dionne, Georges & Eeckhoudt, Louis, 1985. "Self-insurance, self-protection and increased risk aversion," Economics Letters, Elsevier, vol. 17(1-2), pages 39-42.
    11. Ekern, Steinar, 1980. "Increasing Nth degree risk," Economics Letters, Elsevier, vol. 6(4), pages 329-333.
    12. Chuang, O-Chia & Eeckhoudt, Louis & Huang, Rachel J. & Tzeng, Larry Y., 2013. "Risky targets and effort," Insurance: Mathematics and Economics, Elsevier, vol. 52(3), pages 465-468.
    13. Menezes, C & Geiss, C & Tressler, J, 1980. "Increasing Downside Risk," American Economic Review, American Economic Association, vol. 70(5), pages 921-932, December.
    14. Ghirardato, Paolo & Maccheroni, Fabio & Marinacci, Massimo, 2004. "Differentiating ambiguity and ambiguity attitude," Journal of Economic Theory, Elsevier, vol. 118(2), pages 133-173, October.
    15. Anna Conte & John D. Hey, 2018. "Assessing multiple prior models of behaviour under ambiguity," World Scientific Book Chapters, in: Experiments in Economics Decision Making and Markets, chapter 7, pages 169-188, World Scientific Publishing Co. Pte. Ltd..
    16. Arthur Snow, 2011. "Ambiguity aversion and the propensities for self-insurance and self-protection," Journal of Risk and Uncertainty, Springer, vol. 42(1), pages 27-43, February.
    17. Paolo Ghirardato & Marciano Siniscalchi, 2012. "Ambiguity in the Small and in the Large," Econometrica, Econometric Society, vol. 80(6), pages 2827-2847, November.
    18. Ayc{s}e Kocab{i}y{i}kou{g}lu & Ioana Popescu, 2007. "Managerial Motivation Dynamics and Incentives," Management Science, INFORMS, vol. 53(5), pages 834-848, May.
    19. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
    20. ,, 2016. "Objective rationality and uncertainty averse preferences," Theoretical Economics, Econometric Society, vol. 11(2), May.
    21. Michael Hoy & Richard Peter & Andreas Richter, 2014. "Take-up for genetic tests and ambiguity," Journal of Risk and Uncertainty, Springer, vol. 48(2), pages 111-133, April.
    22. Ross, Stephen A, 1981. "Some Stronger Measures of Risk Aversion in the Small and the Large with Applications," Econometrica, Econometric Society, vol. 49(3), pages 621-638, May.
    23. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    24. Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2005. "A Smooth Model of Decision Making under Ambiguity," Econometrica, Econometric Society, vol. 73(6), pages 1849-1892, November.
    25. David Alary & Christian Gollier & Nicolas Treich, 2013. "The Effect of Ambiguity Aversion on Insurance and Self‐protection," Economic Journal, Royal Economic Society, vol. 123(12), pages 1188-1202, December.
    26. Marciano Siniscalchi, 2009. "Vector Expected Utility and Attitudes Toward Variation," Econometrica, Econometric Society, vol. 77(3), pages 801-855, May.
    27. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    28. Laure Cabantous, 2007. "Ambiguity Aversion in the Field of Insurance: Insurers’ Attitude to Imprecise and Conflicting Probability Estimates," Theory and Decision, Springer, vol. 62(3), pages 219-240, May.
    29. Laure Cabantous & Denis Hilton & Howard Kunreuther & Erwann Michel-Kerjan, 2011. "Is imprecise knowledge better than conflicting expertise? Evidence from insurers’ decisions in the United States," Journal of Risk and Uncertainty, Springer, vol. 42(3), pages 211-232, June.
    30. Christian Gollier, 2011. "Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 78(4), pages 1329-1344.
    31. Denuit, Michel & Eeckhoudt, Louis, 2010. "Stronger measures of higher-order risk attitudes," LIDAM Discussion Papers ISBA 2010010, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    32. David S. Ahn, 2008. "Ambiguity Without a State Space," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 3-28.
    33. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    34. Jindapon, Paan & Neilson, William S., 2007. "Higher-order generalizations of Arrow-Pratt and Ross risk aversion: A comparative statics approach," Journal of Economic Theory, Elsevier, vol. 136(1), pages 719-728, September.
    35. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    36. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    37. Huang, Rachel J., 2012. "Ambiguity aversion, higher-order risk attitude and optimal effort," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 338-345.
    38. Robert Nau, 2011. "Risk, ambiguity, and state-preference theory," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 437-467, October.
    39. Li, Jingyuan, 2009. "Comparative higher-degree Ross risk aversion," Insurance: Mathematics and Economics, Elsevier, vol. 45(3), pages 333-336, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christophe Courbage & Beatrice Rey, 2016. "On ambiguity apportionment," Journal of Economics, Springer, vol. 118(3), pages 265-275, July.
    2. Crainich, David & Menegatti, Mario, 2021. "Self-protection with random costs," Insurance: Mathematics and Economics, Elsevier, vol. 98(C), pages 63-67.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter, Richard & Ying, Jie, 2020. "Do you trust your insurer? Ambiguity about contract nonperformance and optimal insurance demand," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 938-954.
    2. Christian Gollier & James Hammitt & Nicolas Treich, 2013. "Risk and choice: A research saga," Journal of Risk and Uncertainty, Springer, vol. 47(2), pages 129-145, October.
    3. Louis Eeckhoudt & Liqun Liu & Jack Meyer, 2017. "Restricted increases in risk aversion and their application," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(1), pages 161-181, June.
    4. Christoph Bühren & Fabian Meier & Marco Pleßner, 2023. "Ambiguity aversion: bibliometric analysis and literature review of the last 60 years," Management Review Quarterly, Springer, vol. 73(2), pages 495-525, June.
    5. Karni, Edi & Maccheroni, Fabio & Marinacci, Massimo, 2015. "Ambiguity and Nonexpected Utility," Handbook of Game Theory with Economic Applications,, Elsevier.
    6. Berger, Loïc & Bosetti, Valentina, 2020. "Characterizing ambiguity attitudes using model uncertainty," Journal of Economic Behavior & Organization, Elsevier, vol. 180(C), pages 621-637.
    7. Jewitt, Ian & Mukerji, Sujoy, 2017. "Ordering ambiguous acts," Journal of Economic Theory, Elsevier, vol. 171(C), pages 213-267.
    8. Huang, Rachel J. & Huang, Yi-Chieh & Tzeng, Larry Y., 2013. "Insurance bargaining under ambiguity," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 812-820.
    9. Hill, Brian, 2023. "Beyond uncertainty aversion," Games and Economic Behavior, Elsevier, vol. 141(C), pages 196-222.
    10. Peter Klibanoff & Sujoy Mukerji & Kyoungwon Seo, 2014. "Perceived Ambiguity and Relevant Measures," Econometrica, Econometric Society, vol. 82(5), pages 1945-1978, September.
    11. Huang, Rachel J., 2012. "Ambiguity aversion, higher-order risk attitude and optimal effort," Insurance: Mathematics and Economics, Elsevier, vol. 50(3), pages 338-345.
    12. Liqun Liu & Nicolas Treich, 2021. "Optimality of winner-take-all contests: the role of attitudes toward risk," Journal of Risk and Uncertainty, Springer, vol. 63(1), pages 1-25, August.
    13. Denuit, Michel & Liu, Liqun & Meyer, Jack, 2014. "A separation theorem for the weak s-convex orders," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 279-284.
    14. Andrew J. Keith & Darryl K. Ahner, 2021. "A survey of decision making and optimization under uncertainty," Annals of Operations Research, Springer, vol. 300(2), pages 319-353, May.
    15. Liu, Liqun & Meyer, Jack, 2013. "Substituting one risk increase for another: A method for measuring risk aversion," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2706-2718.
    16. Denuit, M. & Eeckhoudt, L., 2012. "Risk Attitudes and the Value of Risk Transformations," LIDAM Discussion Papers ISBA 2012007, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    17. Paan Jindapon & Liqun Liu & William S. Neilson, 2021. "Comparative risk apportionment," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 91-112, April.
    18. Peter, Richard, 2019. "Revisiting precautionary saving under ambiguity," Economics Letters, Elsevier, vol. 174(C), pages 123-127.
    19. Liqun Liu & William S. Neilson, 2019. "Alternative Approaches to Comparative n th-Degree Risk Aversion," Management Science, INFORMS, vol. 65(8), pages 3824-3834, August.
    20. Denuit, Michel M. & Eeckhoudt, Louis & Schlesinger, Harris, 2013. "When Ross meets Bell: The linex utility function," Journal of Mathematical Economics, Elsevier, vol. 49(2), pages 177-182.

    More about this item

    Keywords

    Ambiguity; Downside ambiguity; Comparative ambiguity aversion; Comparative downside ambiguity aversion; Effort;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:insuma:v:62:y:2015:i:c:p:257-269. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505554 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.