Temporal Resolution of Ambiguity: Preferences for Timing and Graduality
68 Pages Posted: 9 Aug 2022 Last revised: 7 May 2024
Date Written: August 3, 2022
Abstract
We study agents’ preferences for ambiguity resolution in dynamic environments. In an extension of the original Ellsberg experiment, we first show the existence of preferences for late and gradual resolution of ambiguity. Most importantly, we document a strong interdependence between agents’ attitude towards ambiguity and the preference for the timing and graduality of the resolution of ambiguity. We then compare our results to the predictions of popular recursive models of ambiguity aversion. Out of the considered ambiguity models, only the smooth ambiguity model (Klibanoff, Marinacci, and Mukerji, 2005) is flexible enough to accomodate the observed preferences.
Keywords: Uncertainty Aversion, Preference for Early Resolution of Uncertainty, Probabilistic Sophistication, Recursive Models of Ambiguity
JEL Classification: C91, D81
Suggested Citation: Suggested Citation