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

Attanasi, Giuseppe Marco, Gollier, Christian, Montesano, Aldo and Pace, Noémie (2012) Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach. TSE Working Paper, n. 12-338, Toulouse

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Official URL: http://tse-fr.eu/pub/26314

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.

Item Type: Monograph (Working Paper)
Language: English
Date: 15 September 2012
Place of Publication: Toulouse
Uncontrolled Keywords: coherent-ambiguity aversion, value-ambiguity aversion, choice-ambiguity aversion, smooth ambiguity model, binomial distribution, uniform distribution, unknown urn
JEL codes: C91 - Laboratory, Individual Behavior
D81 - Criteria for Decision-Making under Risk and Uncertainty
D83 - Search; Learning; Information and Knowledge; Communication; Belief
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 09 Jul 2014 17:29
Last Modified: 20 Mar 2018 14:14
OAI ID: oai:tse-fr.eu:26314
URI: http://publications.ut-capitole.fr/id/eprint/15397

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