How do people cope with an ambiguous situation when it becomes even more ambiguous?
As illustrated by the famous Ellsberg paradox, many subjects prefer to bet on events with known rather than with unknown probabilities, i.e., they are ambiguity averse. In an experiment, we examine subjects’ choices when there is an additional source of ambiguity, namely, when they do not know how much money they can win. Using a standard independence assumption, we show that ambiguity averse subjects should continue to strictly prefer the urn with known probabilities. In contrast, our results show that many subjects no longer exhibit such a strict preference. This should have important ramifications for modeling ambiguity aversion.
|Date of creation:||21 Jun 2012|
|Date of revision:|
|Note:||This paper is part of http://archiv.ub.uni-heidelberg.de/volltextserver/view/schriftenreihen/sr-3.html|
|Contact details of provider:|| Postal: Grabengasse 14, D-69117 Heidelberg|
Phone: +49-6221-54 2905
Fax: +49-6221-54 2914
Web page: http://www.awi.uni-heidelberg.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cox, James C. & Sadiraj, Vjollca & Schmidt, Ulrich, 2011.
"Paradoxes and mechanisms for choice under risk,"
Kiel Working Papers
1712, Kiel Institute for the World Economy (IfW).
- James C. Cox & Vjollca Sadiraj & Ulrich Schmidt, 2011. "Paradoxes and Mechanisms for Choice under Risk," Experimental Economics Center Working Paper Series 2011-07, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Mar 2014.
- Yoram Halevy, 2007.
"Ellsberg Revisited: An Experimental Study,"
Econometric Society, vol. 75(2), pages 503-536, 03.
- Peter Klibanoff & Massimo Marinacci & Sujoy Mukerji, 2002.
"A smooth model of decision making under ambiguity,"
ICER Working Papers - Applied Mathematics Series
11-2003, ICER - International Centre for Economic Research, revised Apr 2003.
- Sjaak Hurkens & Navin Kartik, 2009. "Would I lie to you? On social preferences and lying aversion," Experimental Economics, Springer, vol. 12(2), pages 180-192, June.
- Dominiak, Adam & Dürsch, Peter & Lefort, Jean-Philippe, 2009.
"A Dynamic Ellsberg Urn Experiment,"
0487, University of Heidelberg, Department of Economics.
- repec:dau:papers:123456789/7324 is not listed on IDEAS
- Christoph Vanberg, 2008. "Why Do People Keep Their Promises? An Experimental Test of Two Explanations -super-1," Econometrica, Econometric Society, vol. 76(6), pages 1467-1480, November.
- Jurgen Eichberger & Simon Grant & David Kelsey, 2006.
"Updating Choquet Beliefs,"
0607, Exeter University, Department of Economics.
- Eichberger, Jurgen & Kelsey, David, 1996.
"Uncertainty Aversion and Preference for Randomisation,"
Journal of Economic Theory,
Elsevier, vol. 71(1), pages 31-43, October.
- Eichberger, J. & Kelsey, D., 1995. "Uncertainty Aversion and Preferences for Randomisation," Department of Economics - Working Papers Series 476, The University of Melbourne.
- Eichberger, Jurgen & Kelsey, David, 1996.
"Uncertainty Aversion and Dynamic Consistency,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 625-40, August.
- Schnedler, Wendelin & Dominiak, Adam, 2008.
"Uncertainty aversion and preference for randomization,"
08-39, Sonderforschungsbreich 504.
- Schnedler, Wendelin & Dominiak, Adam, 2008. "Uncertainty Aversion and Preference for Randomization," Sonderforschungsbereich 504 Publications 08-39, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- : Ebbe Hendon & Hans Jørgen Jacobsen & Birgitte Sloth & Torben Tranæs, 1993.
"The Product of Capacities and Belief Functions,"
93-04, University of Copenhagen. Department of Economics.
- Cox, James C. & Sadiraj, Vjollca & Schmidt, Ulrich, 2011. "Paradoxes and mechanisms for choice under risk," Kiel Working Papers 1712, Kiel Institute for the World Economy (IfW).
- Cohen, M. & Gilboa, I. & Jaffray, J.Y. & Schmeidler, D., 2000. "An experimental study of updating ambiguous beliefs," Risk, Decision and Policy, Cambridge University Press, vol. 5(02), pages 123-133, June.
When requesting a correction, please mention this item's handle: RePEc:awi:wpaper:0528. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gabi Rauscher)
If references are entirely missing, you can add them using this form.