Testing Ambiguity Models through the Measurement of Probabilities for Gains and Losses

Aurelien Baillon () and Han Bleichrodt

American Economic Journal: Microeconomics, 2015, vol. 7, issue 2, 77-100

Abstract: This paper reports on two experiments that test the descriptive validity of ambiguity models using a natural source of uncertainty (the evolution of stock indices) and both gains and losses. We observed violations of probabilistic sophistication, violations that imply a fourfold pattern of ambiguity attitudes: ambiguity aversion for likely gains and unlikely losses and ambiguity seeking for unlikely gains and likely losses. Our data are most consistent with prospect theory and, to a lesser extent, ? -maxmin expected utility and Choquet expected utility. Models with uniform ambiguity attitudes are inconsistent with most of the observed behavioral patterns. (JEL D81, D83, G11, G12, G14)

JEL-codes: D81 D83 G11 G12 G14 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/mic.20130196
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