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Ambiguity Aversion is the Exception

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  • Martin G. Kocher
  • Amrei M. Lahno
  • Stefan T. Trautmann

Abstract

Assuming universal ambiguity aversion, an extensive theoretical literature studies how ambiguity can account for market anomalies from the perspective of expected utility-based theories. We provide a systematic experimental assessment of ambiguity attitudes in different likelihood ranges and in the gain domain, the loss domain and with mixed outcomes. We draw on a unified framework with more than 500 participants and find that ambiguity aversion is the exception, not the rule. We replicate the usual finding of ambiguity aversion for moderate likelihood gains. However, when introducing losses or lower likelihoods, we observe ambiguity neutrality or seeking, rejecting universal ambiguity aversion.

Suggested Citation

  • Martin G. Kocher & Amrei M. Lahno & Stefan T. Trautmann, 2015. "Ambiguity Aversion is the Exception," CESifo Working Paper Series 5261, CESifo.
    • Handle: RePEc:ces:ceswps:_5261
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Özgür Evren, 2017. "Cautious and Globally Ambiguity Averse," Working Papers w0236, Center for Economic and Financial Research (CEFIR).
    2. Dillenberger, David & Segal, Uzi, 2017. "Skewed noise," Journal of Economic Theory, Elsevier, vol. 169(C), pages 344-364.
    3. Alex Voorhoeve & Ken Binmore & Arnaldur Stefansson & Lisa Stewart, 2016. "Ambiguity attitudes, framing, and consistency," Theory and Decision, Springer, vol. 81(3), pages 313-337, September.
    4. Björk, Lisa & Kocher, Martin & Martinsson, Peter & Nam Khanh, Pham, 2016. "Cooperation under risk and ambiguity," Working Papers in Economics 683, University of Gothenburg, Department of Economics.
    5. Elisa Cavatorta & David Schröder, 2019. "Measuring ambiguity preferences: A new ambiguity preference survey module," Journal of Risk and Uncertainty, Springer, vol. 58(1), pages 71-100, February.
    6. Zhang, Liming & Li, Bin, 2021. "Optimal reinsurance under the α-maxmin mean-variance criterion," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 225-239.
    7. Salmon, Timothy C. & Shniderman, Adam, 2019. "Ambiguity in criminal punishment," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 361-376.
    8. Marc Fleurbaey, 2018. "Welfare economics, risk and uncertainty," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(1), pages 5-40, February.
    9. Massimiliano Amarante & Mario Ghossoub, 2016. "Optimal Insurance for a Minimal Expected Retention: The Case of an Ambiguity-Seeking Insurer," Risks, MDPI, vol. 4(1), pages 1-27, March.
    10. Christoph M. Rheinberger & Nicolas Treich, 2017. "Attitudes Toward Catastrophe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(3), pages 609-636, July.
    11. Chen, Daniel L., 2024. "Is ambiguity aversion a preference? Ambiguity aversion without asymmetric information," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 111(C).
    12. Xia Han & Peng Liu, 2024. "Robust Lambda-quantiles and extreme probabilities," Papers 2406.13539, arXiv.org.
    13. Chen Li, 2017. "Are the poor worse at dealing with ambiguity?," Journal of Risk and Uncertainty, Springer, vol. 54(3), pages 239-268, June.

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    More about this item

    Keywords

    ambiguity aversion; decision under uncertainty; Ellsberg experiments;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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