Temporal Resolution of Ambiguity: Preferences for Timing and Graduality

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

Kieren, Pascal and Gertsman, Gleb and Trautmann, Stefan T., Temporal Resolution of Ambiguity: Preferences for Timing and Graduality (August 3, 2022). Available at SSRN: https://ssrn.com/abstract=4180589 or http://dx.doi.org/10.2139/ssrn.4180589