Experimental Evidence on Valuation with Multiple Priors

36 Pages Posted: 21 Dec 2015

See all articles by Jianying Qiu

Jianying Qiu

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics

Utz Weitzel

Utrecht University - Utrecht University School of Economics; Radboud University - Economics Department, IMR

Date Written: October 04, 2015

Abstract

Popular models for decision making under ambiguity assume that people use not one but multiple priors. This paper is a first attempt to experimentally elicit the min and the max of multiple priors directly. In an ambiguous scenario we measure a participant’s single prior, her min and max of multiple priors, and the valuation of an ambiguous asset with the same underlying states as the ambiguous scenario. We use the min and the max of multiple priors to directly test two popular multiple priors models: the maxmin model and the alpha maxmin model. We find more support for the alpha maxmin model: although people put about twice the weight on the minimum of multiple priors, they also consider the maximum. Furthermore, we indirectly elicit confidence weights over the whole set of multiple priors and test two additional models: variational preferences and the smooth model of ambiguity. Two particular versions of the variational preferences model explain less than the alpha maxmin but more than the maxmin model. Overall, the smooth model of ambiguity performs best among all models tested.

Keywords: ambiguity, multiple priors, valuations, experiment

JEL Classification: C91, D81

Suggested Citation

Qiu, Jianying and Weitzel, Utz, Experimental Evidence on Valuation with Multiple Priors (October 04, 2015). Journal of Risk and Uncertainty, 2016, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2706129

Jianying Qiu

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

Utz Weitzel (Contact Author)

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Radboud University - Economics Department, IMR ( email )

Nijmegen, 6500 HK
Netherlands

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