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Comparing Uncertainty Aversion towards Different Sources

22 Pages Posted: 6 Apr 2016 Last revised: 30 Nov 2016

Aurelien Baillon

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

Ning Liu

Bocconi University - Department of Economics

Dennie van Dolder

Department of Finance - Vrije Universiteit Amsterdam; Centre for Decision Research and Experimental Economics (CeDEx) - University of Nottingham

Date Written: November 29, 2016

Abstract

We propose simple behavioral definitions of comparative uncertainty aversion for a single agent towards different sources of uncertainty. Our definitions allow for the comparison of utility curvature towards different sources if the agent’s choices satisfy subjective expected utility towards each source. We discuss how our definitions can be applied to investigate ambiguity aversion in Klibanoff et al.’s (2005) smooth ambiguity model, to study the effects of learning and situational factors on uncertainty preferences, and to compare uncertainty preferences between different agents.

Keywords: source-preferences, uncertainty, subjective expected utility, smooth ambiguity model

JEL Classification: D81

Suggested Citation

Baillon, Aurelien and Liu, Ning and van Dolder, Dennie, Comparing Uncertainty Aversion towards Different Sources (November 29, 2016). Theory and Decision, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2759334 or http://dx.doi.org/10.2139/ssrn.2759334

Aurelien Baillon (Contact Author)

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

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

Ning Liu

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Dennie Van Dolder

Department of Finance - Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam
Netherlands

Centre for Decision Research and Experimental Economics (CeDEx) - University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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