• Climate change is one policy area mired in ambiguity, where the relevant probabilities of outcomes are not known with precision. Berger and Bosetti travel to the 21st session of the Conference of the Parties to the United Nations Framework Convention on Climate Change to examine the ambiguity preferences of policymakers working on climate change.
• Berger and Bosetti end up collecting data from 80 policymakers at the Climate Change Conference, and reinforce this data via a laboratory experiment involving 189 university students.
• The main finding is that most of the subjects are ambiguity averse, and that policy makers and students show similar ambiguity preferences (when controlling for policymaker country of origin and quantitative expertise). About 15% of policymakers show ambiguity-loving behavior, along with 9% of the students.
• Less than 20% of both samples choose in a manner consistent with expected utility maximization, which requires ambiguity neutrality.
• The main experiments involve choices among subsets of four urns with different colored balls; there are monetary incentives for getting the "right" color when a ball is chosen.
• Urn 1 contains 50 red balls and 50 black balls. Urn 4 contains 100 balls, but it is unknown how many are red and how many are black.
• The comparison between Urn 1 and Urn 4 is another (two-color) version of the Ellsberg game. The decisions are to pick a winning color and to pick an Urn; then, a ball will be picked at random from your chosen urn.
• As noted, most people prefer Urn 1 to Urn 4: they are ambiguity averse. About one-quarter of policymakers and one-fifth of students find Urns 1 and 4 to be equivalent: they are ambiguity neutral.
• The researchers also compare Urn 1 with each (separately) of two other urns. Urn 2 (compound risk) starts with a coin flip that determines whether all 100 balls are red are all 100 are black. Urn 3 (model uncertainty) is where the number of balls is unknown, but one urnish expert swears that they are all red while another expert maintains that they are all black.
• Most subjects (especially students) treat Urn 2 like Urn 1, while that is not the case with Urn 3: model uncertainty is aversive.
• Conference delegates from OECD countries show similar ambiguity aversion as those from non-OECD countries; nor does the degree of quantitative sophistication affect policymaker ambiguity preferences.
• More stringent climate control policies might make sense given widespread aversion to ambiguity, if such policies are able to reduce ambiguity.
