Ambiguity Attitudes in a Large Representative Sample

67 Pages Posted: 1 Jul 2011 Last revised: 4 Feb 2015

See all articles by Stephen G. Dimmock

Stephen G. Dimmock

Nanyang Technological University - Division of Finance

Roy Kouwenberg

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)

Date Written: February 3, 2015

Abstract

Using a theorem showing that matching probabilities of ambiguous events can capture ambiguity attitudes, we introduce a tractable method for measuring ambiguity attitudes and apply it in a large representative sample. In addition to ambiguity aversion, we confirm an ambiguity component recently found in laboratory studies: a insensitivity – the tendency to treat subjective likelihoods as fifty-fifty, thus overweighting extreme events. Our ambiguity measurements are associated with real economic decisions; specifically, a insensitivity is negatively related to stock market participation. Ambiguity aversion is also negatively related to stock market participation, but only for subjects who perceive stock returns as highly ambiguous.

Keywords: Ambiguity aversion, Uncertainty, Portfolio choice, Knightian uncertainty, Non-Expected utility, Reference dependence, Stock market participation, Limited participation

JEL Classification: D81, G11, D14, C83

Suggested Citation

Dimmock, Stephen G. and Kouwenberg, Roy R. P. and Wakker, Peter P., Ambiguity Attitudes in a Large Representative Sample (February 3, 2015). Netspar Discussion Paper No. 06/2011-054. Available at SSRN: https://ssrn.com/abstract=1876580 or http://dx.doi.org/10.2139/ssrn.1876580

Stephen G. Dimmock (Contact Author)

Nanyang Technological University - Division of Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

Roy R. P. Kouwenberg

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

HOME PAGE: http://people.few.eur.nl/kouwenberg

Mahidol University - College of Management ( email )

69 Vipawadee Rangsit Road
Bangkok, 10400
Thailand

HOME PAGE: http://www.cmmu.mahidol.ac.th/main/faculty/aroy.asp

Peter P. Wakker

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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