Ellsberg Revisited: An Experimental Study

Abstract

An extension to Ellsberg's experiment demonstrates that attitudes to ambiguity and compound objective lotteries are tightly associated. The sample is decomposed into three main groups: subjective expected utility subjects - who reduce compound objective lotteries and are ambiguity neutral, and two groups that exhibit different forms of association between preferences over compound lotteries and ambiguity - corresponding to alternative theoretical models that account for ambiguity averse or seeking behavior.

Keywords: Uncertainty Aversion, Probabilistic Sophistication, Reduction of Compound Lotteries, Non-Expected Utility, Maxmin Expected Utility, Anticipated Utility, Rank Dependent Utility, Recursive Utility, Compound Independence, Bundling, Rule Rationality.

JEL Classification: D81, C91