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Eliciting ambiguity aversion in unknown and in compound lotteries: a smooth ambiguity model experimental study

Listed author(s):
  • Giuseppe Attanasi

    ()

  • Christian Gollier
  • Aldo Montesano
  • Noemi Pace

Coherent-ambiguity aversion is defined within the (Klibanoff et al., Econometrica 73:1849–1892, 2005 ) smooth-ambiguity model (henceforth KMM) as the combination of choice-ambiguity and value-ambiguity aversion. Five ambiguous decision tasks are analyzed theoretically, where an individual faces two-stage lotteries with binomial, uniform, or unknown second-order probabilities. Theoretical predictions are then tested through a 10-task experiment. In (unambiguous) tasks 1–5, risk aversion is elicited through both a portfolio choice method and a BDM mechanism. In (ambiguous) tasks 6–10, choice-ambiguity aversion is elicited through the portfolio choice method, while value-ambiguity aversion comes about through the BDM mechanism. The behavior of over 75 % of classified subjects is in line with the KMM model in all tasks 6–10, independent of their degree of risk aversion. Furthermore, the percentage of coherent-ambiguity-averse subjects is lower in the binomial than in the uniform and in the unknown treatments, with only the latter difference being significant. The most part of coherent-ambiguity-loving subjects show a high risk aversion. Copyright Springer Science+Business Media New York 2014

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File URL: http://hdl.handle.net/10.1007/s11238-013-9406-z
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Article provided by Springer in its journal Theory and Decision.

Volume (Year): 77 (2014)
Issue (Month): 4 (December)
Pages: 485-530

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Handle: RePEc:kap:theord:v:77:y:2014:i:4:p:485-530
DOI: 10.1007/s11238-013-9406-z
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Order Information: Web: http://www.springer.com/economics/economic+theory/journal/11238/PS2

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