Experimental evidence on the relationship between perceived ambiguity and likelihood insensitivity

Luca Henkel

Games and Economic Behavior, 2024, vol. 145, issue C, 312-338

Abstract: Observed individual behavior in the presence of ambiguity shows insufficient responsiveness to changes in subjective likelihoods. Despite being integral to theoretical models and relevant in many domains, evidence on the causes and determining factors of such likelihood insensitive behavior is scarce. This paper investigates the role of beliefs in the form of ambiguity perception – the extent to which a decision-maker has difficulties assigning a single probability to each possible event – as a potential determinant. Using an experiment, I elicit measures of ambiguity perception and likelihood insensitivity and exogenously vary the level of perceived ambiguity. The results provide strong support for a perception-based explanation of likelihood insensitivity. The two measures are highly correlated at the individual level, and exogenously increasing ambiguity perception increases insensitivity, suggesting a causal relationship. In contrast, ambiguity perception is unrelated to ambiguity aversion – the extent to which a decision-maker dislikes the presence of ambiguity.

Keywords: Ambiguity; Decision-making under uncertainty; Likelihood insensitivity; Multiple prior models (search for similar items in EconPapers)
JEL-codes: C91 D81 D83 D91 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825624000460
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Experimental Evidence on the Relationship Between Perceived Ambiguity and Likelihood Insensitivity (2023)
Working Paper: Experimental Evidence on the Relationship between Perceived Ambiguity and Likelihood Insensitivity (2022)
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:eee:gamebe:v:145:y:2024:i:c:p:312-338

DOI: 10.1016/j.geb.2024.03.015

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().