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The Rich Domain of Ambiguity Explored

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  • Müller, Julia
  • Li, Zhihua
  • Wakker, Peter P.
  • Wang, Tong V.

Abstract

Ellsberg and others suggested that decision under ambiguity is a rich empirical domain with many phenomena to be investigated beyond the Ellsberg urns. We provide a systematic empirical investigation of this richness by varying both the uncertain events, the outcomes, and combinations of these. Although ambiguity aversion is prevailing, we also find systematic ambiguity seeking, confirming insensitivity. We find that ambiguity attitudes depend on the source of uncertainty (the kind of uncertain event) but not on the outcomes. Ambiguity attitudes are closer to rationality (ambiguity neutrality) for natural uncertainties than for the Ellsberg urns, as appearing from the reductions of monotonicity violations and of insensitivity. Our rich domain serves well to test families of weighting functions for fitting ambiguity attitudes. We find that two-parameter families, capturing not only aversion but also insensitivity, are desirable for ambiguity even more than for risk. The Goldstein-Einhorn family performs best for ambiguity.

Suggested Citation

  • Müller, Julia & Li, Zhihua & Wakker, Peter P. & Wang, Tong V., 2016. "The Rich Domain of Ambiguity Explored," VfS Annual Conference 2016 (Augsburg): Demographic Change 145734, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc16:145734
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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