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Ambiguity Attitudes in a Large Representative Sample

Stephen Dimmock, Roy Kouwenberg () and Peter Wakker

Management Science, 2016, vol. 62, issue 5, 1363-1380

Abstract: Using a theorem showing that matching probabilities of ambiguous events can capture ambiguity attitudes, we introduce a tractable method for measuring ambiguity attitudes and apply it in a large representative sample. In addition to ambiguity aversion, we confirm an ambiguity component recently found in laboratory studies: a-insensitivity, the tendency to treat subjective likelihoods as 50-50, thus overweighting extreme events. Our ambiguity measurements are associated with real economic decisions; specifically, a-insensitivity is negatively related to stock market participation. Ambiguity aversion is also negatively related to stock market participation, but only for subjects who perceive stock returns as highly ambiguous. This paper was accepted by James Smith, decision analysis .

Keywords: ambiguity aversion; uncertainty; portfolio choice; Knightian uncertainty; nonexpected utility; reference dependence; stock market participation; nonparticipation (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:inm:ormnsc:v:62:y:2016:i:5:p:1363-1380