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Risk, Ambiguity, And Diversification

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  • Santiago I. Sautua

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Abstract

Attitudes toward risk in?uence the decision to diversify among uncertain options. Yet, because in most situations the options are ambiguous, attitudes toward ambiguity may also play an important role. I conduct a laboratory experiment to investigate the effect of ambiguity on the decision to diversify. I fi?nd that diversi?cation is more prevalent and more persistent under ambiguity than under risk. Moreover, excess diversi?cation under ambiguity is driven by participants who stick with a status quo gamble when diversi?cation among gambles is not feasible. This behavioral pattern cannot be accommodated by major theories of choice under ambiguity

Suggested Citation

  • Santiago I. Sautua, 2016. "Risk, Ambiguity, And Diversification," DOCUMENTOS DE TRABAJO 014588, UNIVERSIDAD DEL ROSARIO.
  • Handle: RePEc:col:000092:014588
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    References listed on IDEAS

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    More about this item

    Keywords

    risk; ambiguity; inertia; diversi?cation; reference-dependent preferences; indecisiveness; ambiguity aversion;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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