Ambiguity Aversion is the Exception

30 Pages Posted: 9 Apr 2015

See all articles by Martin G. Kocher

Martin G. Kocher

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Göteborg University - School of Business, Economics and Law; Queensland University of Technology - School of Economics and Finance

Amrei Marie Lahno

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

Stefan Trautmann

Tilburg University

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, Ambiguity Aversion is the Exception (March 31, 2015). CESifo Working Paper Series No. 5261. Available at SSRN: https://ssrn.com/abstract=2592313

Martin G. Kocher

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

Ludwigstrasse 28
Munich, D-80539
Germany

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Amrei Marie Lahno

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

Ludwigstrasse 28
Munich, D-80539
Germany

Stefan Trautmann (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

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