A Two-Ball Ellsberg Paradox
CESifo, Munich, 2023
CESifo Working Paper No. 10745
![](https://www.cesifo.org/DocImg/cesifo1_wp10745.jpg?c=1700122161)
We conduct an incentivized experiment on a nationally representative US sample (N=708) to test whether people prefer to avoid ambiguity even when it means choosing dominated options. In contrast to the literature, we find that 55% of subjects prefer a risky act to an ambiguous act that always provides a larger probability of winning. Our experimental design shows that such a preference is not mainly due to a lack of understanding. We conclude that subjects avoid ambiguity per se rather than avoiding ambiguity because it may yield a worse outcome. Such
behavior cannot be reconciled with existing models of ambiguity aversion in a straightforward manner.
Empirical and Theoretical Methods
Behavioural Economics