Eliciting ambiguity aversion in unknown and in compound lotteries: A smooth ambiguity model experimental study

Attanasi, Giuseppe Marco, Gollier, Christian, Montesano, Aldo and Pace, Noémie (2014) Eliciting ambiguity aversion in unknown and in compound lotteries: A smooth ambiguity model experimental study. Theory and Decision, vol.77 (n°4). pp. 485-530.

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Official URL: http://tse-fr.eu/pub/27426

Abstract

Coherent-ambiguity aversion is defined within the (Klibanoff et al., Econometrica 73:1849–1892, 2005) smooth-ambiguity model (henceforth KMM) as the combination of choice-ambiguity and value-ambiguity aversion. Five ambiguous decision tasks are analyzed theoretically, where an individual faces two-stage lotteries with binomial, uniform, or unknown second-order probabilities. Theoretical predictions are then tested through a 10-task experiment. In (unambiguous) tasks 1–5, risk aversion is elicited through both a portfolio choice method and a BDM mechanism. In (ambiguous) tasks 6–10, choice-ambiguity aversion is elicited through the portfolio choice method, while value-ambiguity aversion comes about through the BDM mechanism. The behavior of over 75 % of classified subjects is in line with the KMM model in all tasks 6–10, independent of their degree of risk aversion. Furthermore, the percentage of coherent-ambiguity-averse subjects is lower in the binomial than in the uniform and in the unknown treatments, with only the latter difference being significant. The most part of coherent-ambiguity-loving subjects show a high risk aversion.

Item Type: Article
Language: English
Date: December 2014
Refereed: Yes
Uncontrolled Keywords: Coherent-ambiguity aversion, Value-ambiguity aversion, Choice-ambiguity aversion, Smooth ambiguity model, Binomial distribution, Uniform distribution, Unknown urn
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:39
Last Modified: 16 Mar 2018 16:44
OAI ID: oai:tse-fr.eu:27426
URI: http://publications.ut-capitole.fr/id/eprint/16476

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