Is Ambiguity Aversion a Preference? Ambiguity Aversion Without Asymmetric Information

TSE Working Paper No. 16-703

50 Pages Posted: 7 Mar 2017 Last revised: 24 Feb 2020

See all articles by Daniel L. Chen

Daniel L. Chen

Directeur de Recherche, Centre National de la Recherche Scientifique, Toulouse School of Economics, Institute for Advanced Study in Toulouse, University of Toulouse Capitole, Toulouse, France

Martin Schonger

ETH Zürich

Date Written: December 19, 2019

Abstract

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

Chen, Daniel L. and Schonger, Martin, Is Ambiguity Aversion a Preference? Ambiguity Aversion Without Asymmetric Information (December 19, 2019). TSE Working Paper No. 16-703, Available at SSRN: https://ssrn.com/abstract=2928126 or http://dx.doi.org/10.2139/ssrn.2928126

Daniel L. Chen (Contact Author)

Directeur de Recherche, Centre National de la Recherche Scientifique, Toulouse School of Economics, Institute for Advanced Study in Toulouse, University of Toulouse Capitole, Toulouse, France ( email )

Toulouse School of Economics
1, Esplanade de l'Université
Toulouse, 31080
France

Martin Schonger

ETH Zürich ( email )

Rämistrasse 101
ZUE F7
Zürich, 8092
Switzerland

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