Testing ambiguity theories with a mean-preserving design

Artikel

Prominent models such as maxmin expected utility/alpha-multiprior (MEU/ a -MP) and Klibanoff, Marinacci, and Mukerji (KMM) interpret ambiguity aversion as aversion against second-order risks associated with ambiguous acts. We design an experiment where the decision maker draws twice with replacement in the typical Ellsberg two-color urns, but with a different color winning each time. Given this set of mean-preserving prospects, MEU/α‐MP, KMM, and Savage's subjective expected utility all predict unequivocally that risk-averse decision makers (DMs) will avoid the 50 - 50 urn that exhibits the highest risk conceivable, while risk-seeking DMs do the opposite. However, we observe a substantial number of violations in the experiments. It appears that the ambiguity premium is partially paid to avoid the ambiguity issue per se, which is distinct from notions of second- order risk. This finding is robust even when there is only partial ambiguity, and is applicable to all models that satisfy a monotonicity condition.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Quantitative Economics ; ISSN: 1759-7331 ; Volume: 8 ; Year: 2017 ; Issue: 1 ; Pages: 219-238 ; New Haven, CT: The Econometric Society

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Criteria for Decision-Making under Risk and Uncertainty
• Subject: Ambiguity ; Ellsberg paradox ; expected utility ; experiment ; mean preserving ; monotonicity ; partial ambiguity ; second-order risk ; source premium

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Yang, Chun-Lei ; Yao, Lan
• Event: Veröffentlichung
• (who): The Econometric Society
• (where): New Haven, CT
• (when): 2017

Further information

• DOI: doi:10.3982/QE460
• Handle: http://hdl.handle.net/10419/195539
• Last update: 10.03.2025, 11:42 AM CET