Zooming in on Ambiguity Attitudes

25 Pages Posted: 14 Nov 2018

See all articles by Aurelien Baillon

Aurelien Baillon

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

Aysil Emirmahmutoglu

Erasmus University Rotterdam (EUR)

Date Written: November 2018

Abstract

Empirical studies of ambiguity attitudes to date have focused on events of moderate likelihood. Extrapolation to rare events requires caution. In an Ellsberg‐like experiment with very unlikely events, we measured ambiguity attitudes with neither assumptions on subjects' beliefs nor restrictions to specific ambiguity models. Very unlikely events were overweighted, being weighted more strongly in isolation than when part of larger events. Using latent profile analysis, we classified the subjects in terms of deviations from ambiguity neutrality. One third behaved close to ambiguity neutrality. The others exhibited overweighting of rare events. Such behavior can lead to money‐pump situations.

Suggested Citation

Baillon, Aurelien and Emirmahmutoglu, Aysil, Zooming in on Ambiguity Attitudes (November 2018). International Economic Review, Vol. 59, Issue 4, pp. 2107-2131, 2018. Available at SSRN: https://ssrn.com/abstract=3284009 or http://dx.doi.org/10.1111/iere.12331

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

Aysil Emirmahmutoglu

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
63
PlumX Metrics