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Ambiguity Aversion is the Exception

Listed author(s):
  • Martin G. Kocher
  • Amrei M. Lahno
  • Stefan T. Trautmann

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.

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File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5261.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 5261.

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Date of creation: 2015
Handle: RePEc:ces:ceswps:_5261
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  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. Mohammed Abdellaoui & Frank Vossmann & Martin Weber, 2005. "Choice-Based Elicitation and Decomposition of Decision Weights for Gains and Losses Under Uncertainty," Management Science, INFORMS, vol. 51(9), pages 1384-1399, September.
  3. Carmela Di Mauro & Anna Maffioletti, 2004. "Attitudes to risk and attitudes to uncertainty: experimental evidence," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 357-372.
  4. Berger, Loïc & Bleichrodt, Han & Eeckhoudt, Louis, 2013. "Treatment decisions under ambiguity," Journal of Health Economics, Elsevier, vol. 32(3), pages 559-569.
  5. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  6. Christian Gollier, 2011. "Portfolio Choices and Asset Prices: The Comparative Statics of Ambiguity Aversion," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1329-1344.
  7. David Easley & Maureen O'Hara, 2009. "Ambiguity and Nonparticipation: The Role of Regulation," Review of Financial Studies, Society for Financial Studies, vol. 22(5), pages 1817-1843, May.
  8. Aurélien Baillon & Han Bleichrodt, 2015. "Testing Ambiguity Models through the Measurement of Probabilities for Gains and Losses," American Economic Journal: Microeconomics, American Economic Association, vol. 7(2), pages 77-100, May.
  9. 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.
  10. Budescu, David V. & Kuhn, Kristine M. & Kramer, Karen M. & Johnson, Timothy R., 2002. "Erratum to "Modeling certainty equivalents for imprecise gambles" [Organizational Behavior and Human Decision Processes 88 (2002) 748-768]," Organizational Behavior and Human Decision Processes, Elsevier, vol. 89(2), pages 1214-1213, November.
  11. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
  12. Pascal J. Maenhout, 2004. "Robust Portfolio Rules and Asset Pricing," Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 951-983.
  13. Dale O. Stah, 2014. "Heterogeneity of Ambiguity Preferences," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 609-617, October.
  14. 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.
  15. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
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