Is Ambiguity Aversion a Preference? Ambiguity Aversion Without Asymmetric Information
TSE Working Paper No. 16-703
52 Pages Posted: 7 Mar 2017 Last revised: 11 Feb 2019
Date Written: February 5, 2019
Ambiguity aversion is the interpretation of the experimental finding (Ellsberg paradox) that most subjects prefer betting on events whose probabilities are known (objective) to betting on events whose probabilities are unknown (subjective). However in typical experiments these unknown probabilities are known by others. Thus the typical Ellsberg experiment is a situation of asymmetric information. People may try to avoid situations where they are the less informed party, which is normatively appropriate. We find that eliminating asymmetric information in the Ellsberg experiment while leaving ambiguity in place, makes subjects prefer the ambiguous bet over the objective one, reversing the prior results.
Keywords: Uncertainty Aversion, Probabilistic Sophistication, Sources of Ambiguity, Ellsberg Paradox
JEL Classification: D81, G11, C91
Suggested Citation: Suggested Citation