Ambiguity Aversion is the Exception

30 Pages Posted: 9 Apr 2015

See all articles by Martin G. Kocher

Martin G. Kocher

University of Vienna

Amrei Marie Lahno

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics

Stefan T. Trautmann

Heidelberg University - Alfred Weber Institute for Economics

Date Written: March 31, 2015

Abstract

An extensive literature has studied ambiguity aversion in economic decision making, and how ambiguity aversion can account for empirically observed violations of expected utility-based theories. Almost all relevant applied models presume a general dislike of ambiguity. In this paper, we provide a systematic experimental assessment of ambiguity attitudes in different likelihood ranges and in the gain domain, the loss domain and with mixed outcomes. We draw on a unified framework with more than 500 participants and find that ambiguity aversion is the exception, not the rule. We replicate the usual finding of ambiguity aversion for moderate likelihood gains. However, when introducing losses or lower likelihoods, we observe either ambiguity neutrality or even ambiguity seeking behavior. Our results are robust to different elicitation procedures.

Keywords: ambiguity aversion, decision under uncertainty, Ellsberg experiments

JEL Classification: C910, D810

Suggested Citation

Kocher, Martin G. and Lahno, Amrei Marie and Trautmann, Stefan T., Ambiguity Aversion is the Exception (March 31, 2015). CESifo Working Paper Series No. 5261, Available at SSRN: https://ssrn.com/abstract=2592313 or http://dx.doi.org/10.2139/ssrn.2592313

Martin G. Kocher

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Amrei Marie Lahno

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Stefan T. Trautmann (Contact Author)

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

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