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Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach

  • Attanasi, Giuseppe
  • Gollier, Christian
  • Montesano, Aldo
  • Pace, Noémie

We define coherent-ambiguity aversion within the Klibanoff, Marinacci and Mukerji (2005) smooth ambiguity model (henceforth KMM) as the combination of choice-ambiguity aversion and value-ambiguity aversion. We analyze theoretically five ambiguous decision tasks, where a subject faces two-stage lotteries with binomial, uniform or unknown second-order probabilities. We check our theoretical predictions through a 10-task laboratory experiment. In (unambiguous) tasks 1-5, we elicit risk aversion both through a portfolio choice method and through a BDM mechanism. In (ambiguous) tasks 6-10, we elicit choice-ambiguity aversion through the portfolio choice method and value-ambiguity aversion through the BDM mechanism. We find that more than 75% of classified subjects behave according to the KMM model in all tasks 6-10, independent of their degree of risk aversion. Further, the percentage of coherently-ambiguity-averse subjects is lower in the binomial than in the uniform and in the unknown treatment, with only the latter difference being significant. Finally, highly-risk-averse subjects are more prone to coherent-ambiguity.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 744.

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Date of creation: 15 Sep 2012
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Publication status: Published in Theory and Decision, vol.�77, n°4, décembre 2014, p.�485-530.
Handle: RePEc:ide:wpaper:26341
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