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Ambiguity in Individual Choice and Market Environments: On the Importance of Comparative Ignorance

  • Jonathan E. Alevy

    ()

    (Department of Economics, University of Alaska Anchorage)

After Ellsberg’s thought experiments brought focus to the relevance of missing information for choice, extensive efforts have been made to understand ambiguity theoretically and empirically (Ellsberg 1961). Fox and Tversky (1995) make an important contribution to understanding behavioral responses to ambiguity. In an individual choice setting they demonstrate that an aversion to ambiguous lotteries arises only when a comparison to unambiguous lotteries is available. The current study advances this literature by exploring the importance of Fox and Tversky’s finding for market outcomes and finds support for their Comparative Ignorance Hypothesis in the market setting.

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File URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201104.pdf
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Paper provided by University of Alaska Anchorage, Department of Economics in its series Working Papers with number 2011-04.

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Date of creation: 2011
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Handle: RePEc:ala:wpaper:2011-04
Contact details of provider: Web page: http://www.cbpp.uaa.alaska.edu/CBPPHome/DepartmentsandMajors/Economics.aspx

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  1. Sunder, Shyam, 1992. "Market for Information: Experimental Evidence," Econometrica, Econometric Society, vol. 60(3), pages 667-95, May.
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