Measuring Beliefs and Ambiguity Attitudes Towards Discrete Sources of Uncertainty

Yao Kpegli and Maria Alejandra Erazo Diaz ()
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Maria Alejandra Erazo Diaz: Univ Lyon, Université Lyon 2, GATE UMR 5824, F-69130 Ecully, France

No 2212, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: This paper proposes a new method to measure beliefs and ambiguity attitudes towards events that are not necessarily equally likely and belong to a discrete set (i.e., discrete sources of uncertainty). Our method increases robustness to misspecification and allows flexibility in parametric choices compared to previous methods. We implement our method experimentally to both equal and different sources of uncertainty in two contexts: trust and coordination games. We find two main results. First, for equal sources of uncertainty, our method successfully reveals that subjects have context-independent beliefs on events, but context-dependent utility and weighting functions. This result indicates that comparing different sources of uncertainty requires a complete measurement of the utility and weighting functions. Second, different sources of uncertainty where the events are not equally likely lead to an increase in likelihood insensitivity, which indicates that the beliefs formation process of unknown events is cognitively demanding.

Keywords: Subjective beliefs; Ambiguity attitudes; Sources of uncertainty; Trust game; Coordination game (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-exp and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:2212

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