Comparing Ambiguous Urns with Different Sizes

Abstract

We investigate experimentally preferences between different ambiguous processes generated by two-color Ellsberg urns. By providing symmetric information on urns with different numbers of beads and keeping the information on the most optimistic, pessimistic, and equal probability of winning possibilities the same, we elicit subjects' preferences for the size of an ambiguous urn. Subjects prefer the bets from the ambiguous urns with more beads. We analyze the role of ambiguity aversion and ratio bias of subjects in this behavior. We study the restrictions that our findings impose on the existing ambiguity models.

Keywords: Ambiguity, Risk, Ratio Bias, Ellsberg's Experiment

JEL Classification: D01, D03, D80, D81