Preferences for the Resolution of Risk and Ambiguity
68 Pages Posted: 2 May 2022 Last revised: 11 Mar 2025
Date Written: October 12, 2023
Abstract
Generalized recursive utility models often imply that agents have a preference over the timing of uncertainty resolution. Laboratory elicitations of subject preferences generally provide direct evidence in support of this implication, but only in the domain of risk. We provide the first experimental examination of uncertainty resolution with respect to ambiguity, in addition to risk. The modal subject exhibits a preference for both early resolution of risk and ambiguity, but with only a minimal willingness to pay to realize either over late resolution. While preferences in both domains are positively correlated, the strength of that correlation varies based on ambiguity attitudes. Of ten, commonly used, representative recursive utility models, either the generalized recursive smooth ambiguity model or the generalized recursive variational preference model best explains our findings. The distinction depends on whether we consider subjects’ token willingness to pay as a true preference or indifference, respectively.
Keywords: uncertainty resolution, risk, ambiguity aversion, recursive utility, experimental economics
JEL Classification: C91, D81
Suggested Citation: Suggested Citation
Brown, Alexander L. and Guo, Huiyi and Je, Hyundam, Preferences for the Resolution of Risk and Ambiguity (October 12, 2023). Available at SSRN: https://ssrn.com/abstract=4092231 or http://dx.doi.org/10.2139/ssrn.4092231
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