Ambiguity Aversion is the Exception
CESifo, Munich, 2015
CESifo Working Paper No. 5261
Assuming universal ambiguity aversion, an extensive theoretical literature studies how ambiguity can account for market anomalies from the perspective of expected utility-based theories. We provide a systematic experimental assessment of ambiguity attitudes in different likelihood ranges and in the gain domain, the loss domain and with mixed outcomes. We draw on a unified framework with more than 500 participants and find that ambiguity aversion is the exception, not the rule. We replicate the usual finding of ambiguity aversion for moderate likelihood gains. However, when introducing losses or lower likelihoods, we observe ambiguity neutrality or seeking, rejecting universal ambiguity aversion.
Behavioural Economics
Empirical and Theoretical Methods