Preferences for the Resolution of Risk and Ambiguity

68 Pages Posted: 2 May 2022 Last revised: 11 Mar 2025

See all articles by Alexander L. Brown

Alexander L. Brown

Texas A&M University - Department of Economics

Huiyi Guo

Texas A&M University - Department of Economics

Hyundam Je

The University of Sydney

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

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

Alexander L. Brown

Texas A&M University - Department of Economics ( email )

4228 TAMU
College Station, TX 77843-4228
United States
979-862-8084 (Phone)
979-847-8757 (Fax)

HOME PAGE: http://econweb.tamu.edu/abrown/

Huiyi Guo (Contact Author)

Texas A&M University - Department of Economics ( email )

2935 Research Parkway
250 Liberal Arts Social Sciences Building
College Station, TX 77843-4228
United States
979-847-8757 (Fax)

HOME PAGE: http://guohuiyi.com

Hyundam Je

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

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