Martin G. Kocher, Amrei Marie Lahno, and Stefan T. Trautmann,
“Ambiguity Aversion is the Exception.” CESifo Working Paper No. 5261,
March, 2015 [pdf available for download here].
[A later (and differently titled) version of this paper appears as Martin G. Kocher, Amrei Marie Lahno, and Stefan T. Trautmann, “Ambiguity Aversion is Not Universal,” European Economic Review 101: 268-283, January 2018.]
• In light of the Ellsberg paradox, many researchers believe that people are averse to ambiguity: people will accept known risks over ambiguous ones even when such choices are rather costly.
• But ambiguity aversion has only been robustly demonstrated for choices involving uncertain gains, and where the probability of achieving a gain is moderate. What about quite unlikely risks, or prospects involving losses, or mixed (gains and losses) gambles?
• Kocher et al. conduct a laboratory experiment with more than 500 participants. The main result is that for moderate likelihood gain prospects, ambiguity aversion exists (consistent with the prior literature). But outside of the moderate likelihood gain domain, aversion is harder to find, and even ambiguity seeking sometimes is common. Further, there’s a good deal of ambiguity neutrality in all conditions.
• Previous work predicts: ambiguity aversion for moderately likely gains and for low likelihood losses; ambiguity seeking for low likelihood gains and moderately likely losses. Kocher et al. hypothesize ambiguity aversion for mixed gain/loss prospects.
• In the first stage of the experiment, it is only in the moderate likelihood gain domain that ambiguity aversion (still, in a minority of participants) is indicated. Most people (in all domains) are ambiguity neutral. Once the effectively neutral folks are purged from the data set, what remains is the predicted pattern: ambiguity aversion in the gains domain for moderate likelihoods, and in the losses domain for low likelihoods; ambiguity seeking for low-likelihood gains and moderate likelihood losses.
• For mixed gain/loss prospects, once again ambiguity neutrality dominates. When the neutrals are removed from the data set in this domain, the only statistically significant finding is ambiguity seeking for a .1 (average) chance to win 10 euro paired with a .9 (average) chance to lose 10 euro.
[A later (and differently titled) version of this paper appears as Martin G. Kocher, Amrei Marie Lahno, and Stefan T. Trautmann, “Ambiguity Aversion is Not Universal,” European Economic Review 101: 268-283, January 2018.]
• But ambiguity aversion has only been robustly demonstrated for choices involving uncertain gains, and where the probability of achieving a gain is moderate. What about quite unlikely risks, or prospects involving losses, or mixed (gains and losses) gambles?
• Kocher et al. conduct a laboratory experiment with more than 500 participants. The main result is that for moderate likelihood gain prospects, ambiguity aversion exists (consistent with the prior literature). But outside of the moderate likelihood gain domain, aversion is harder to find, and even ambiguity seeking sometimes is common. Further, there’s a good deal of ambiguity neutrality in all conditions.
• Previous work predicts: ambiguity aversion for moderately likely gains and for low likelihood losses; ambiguity seeking for low likelihood gains and moderately likely losses. Kocher et al. hypothesize ambiguity aversion for mixed gain/loss prospects.
• In the first stage of the experiment, it is only in the moderate likelihood gain domain that ambiguity aversion (still, in a minority of participants) is indicated. Most people (in all domains) are ambiguity neutral. Once the effectively neutral folks are purged from the data set, what remains is the predicted pattern: ambiguity aversion in the gains domain for moderate likelihoods, and in the losses domain for low likelihoods; ambiguity seeking for low-likelihood gains and moderate likelihood losses.
• For mixed gain/loss prospects, once again ambiguity neutrality dominates. When the neutrals are removed from the data set in this domain, the only statistically significant finding is ambiguity seeking for a .1 (average) chance to win 10 euro paired with a .9 (average) chance to lose 10 euro.
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