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

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Listed author(s):
  • Attanasi, Giuseppe
  • Gollier, Christian
  • Montesano, Aldo
  • Pace, Noémie

Abstract

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 ?ve 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 ?nd that more than 75% of classi?ed 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 signi?cant. Finally, highly-risk-averse subjects are more prone to coherent-ambiguity.

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File URL: http://www.tse-fr.eu/sites/default/files/medias/doc/wp/bee/eliciting.pdf
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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-338.

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Date of creation: 15 Sep 2012
Publication status: Published in Theory and Decision, vol. 77, n°4, décembre 2014, p. 485-530.
Handle: RePEc:tse:wpaper:26314
Contact details of provider: Phone: (+33) 5 61 12 86 23
Web page: http://www.tse-fr.eu/

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Keywords: coherent-ambiguity aversion; value-ambiguity aversion; choice-ambiguity aversion; smooth ambiguity model; binomial distribution; uniform distribution; unknown urn.;

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Find related papers by 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
  • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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