Revealed Preferences for Risk and Ambiguity

23 Pages Posted: 16 Nov 2010

See all articles by Donald Brown

Donald Brown

Yale University - Cowles Foundation

Chandra Erdman

Government of the United States of America - Bureau of the Census

Kirsten Ling

affiliation not provided to SSRN

Laurie Santos

Yale University - Department of Psychology

Date Written: November 15, 2010

Abstract

We replicate the essentials of the Huettel et al. (2006) experiment on choice under uncertainty with 30 Yale undergraduates, where subjects make 200 pair-wise choices between risky and ambiguous lotteries. Inferences about the independence of economic preferences for risk and ambiguity are derived from estimation of a mixed logit model, where the choice probabilities are functions of two random effects: the proxies for risk-aversion and ambiguity-aversion.

Our principal empirical finding is that we cannot reject the null hypothesis that risk and ambiguity are independent in economic choice under uncertainty. This finding is consistent with the hypothesized independence of the neural mechanisms governing economic choices under risk and ambiguity, suggested by the double dissociation-fMRI study reported in Huettel et al.

Keywords: Mixed logit, Risk-aversion, Ambiguity-aversion

JEL Classification: C14, C25, C91, D03, D81

Suggested Citation

Brown, Donald J. and Erdman, Chandra and Ling, Kirsten and Santos, Laurie, Revealed Preferences for Risk and Ambiguity (November 15, 2010). Cowles Foundation Discussion Paper No. 1774, Available at SSRN: https://ssrn.com/abstract=1709586 or http://dx.doi.org/10.2139/ssrn.1709586

Donald J. Brown (Contact Author)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

Chandra Erdman

Government of the United States of America - Bureau of the Census ( email )

4600 Silver Hill Road

Kirsten Ling

affiliation not provided to SSRN ( email )

Laurie Santos

Yale University - Department of Psychology ( email )

P.O. Box 208205
New Haven, CT 06520-8205
United States

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