Ambiguity Attitudes in a Large Representative Sample: Measurement and an Application to the Non-Participation Puzzle
Stephen G. Dimmock
Nanyang Technological University - Division of Finance
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Mahidol University - College of Management
Peter P. Wakker
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)
June 11, 2012
Netspar Discussion Paper No. 06/2011-054
In a large representative sample, we measure ambiguity attitudes and investigate their relation with stock market participation. Our tractable measurement of the general population’s ambiguity attitudes is made possible by a simplification of the recently introduced source method. In addition to ambiguity aversion, the results from our representative sample confirm a-insensitivity, a new component of ambiguity attitudes recently found in laboratory studies. A-insensitivity means that people do not sufficiently discriminate between different levels of likelihood, often treating them as fifty-fifty. Contrary to common expectation, ambiguity aversion, when measured using classical stimuli, is not significantly associated with stock market participation, except for those subjects who perceive stock returns as highly ambiguous. A-insensitivity, however, is negatively related to both stock market participation and private business ownership. These surprising findings can be explained by reference dependent ambiguity. Our results show the empirical relevance of a-insensitivity and reference dependence for real-world economic decisions.
Number of Pages in PDF File: 71
Keywords: Ambiguity Aversion, Uncertainty, Portfolio Choice, Knightian Uncertainty, Non-Expected Utility, Reference Dependence, Stock Market Participation, Limited Participation
JEL Classification: D81, G11, D14, C83working papers series
Date posted: July 1, 2011 ; Last revised: June 12, 2012
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