Ambiguity Framed

Mark Schneider (), Jonathan Leland and Nathaniel Wilcox
Additional contact information
Mark Schneider: Economic Science Institute, Chapman University

Working Papers from Chapman University, Economic Science Institute

Abstract: In his exposition of subjective expected utility theory, Savage (1954) proposed that the Allais paradox could be reduced if it were recast into a format which made the appeal of the independence axiom of expected utility theory more transparent. Recent studies consistently find support for this prediction. We consider a salience-based choice model which explains this frame-dependence of the Allais paradox and derive the novel prediction that the same type of presentation format which was found to reduce Allais-style violations of expected utility theory will also reduce Ellsberg-style violations of subjective expected utility theory since that format makes the appeal of Savage’s “sure thing principle” more transparent. We design an experiment to test this prediction and find strong support for such frame dependence of ambiguity aversion in Ellsberg-style choices. In particular, we observe markedly less ambiguity-averse behavior in Savage’s matrix format than in a more standard ‘prospect’ format. This finding poses a new challenge for the leading models of ambiguity aversion.

Keywords: Ellsberg paradox; Ambiguity Aversion; Framing Effects; Expected Utility (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-exp, nep-net and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.chapman.edu/research-and-institutions/e ... ity-framed-2016a.pdf

Related works:
Journal Article: Ambiguity framed (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:16-11

Access Statistics for this paper

More papers in Working Papers from Chapman University, Economic Science Institute Contact information at EDIRC.
Bibliographic data for series maintained by Megan Luetje ().