Testing source influence on ambiguity reaction: Preference and insensitivity

Gianna Lotito, Anna Maffioletti () and Michele Santoni
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Anna Maffioletti: Università degli Studi di Torino

Journal of Risk and Uncertainty, 2024, vol. 69, issue 3, No 4, 349-411

Abstract: Abstract This study investigated whether different sources of uncertainty exert different influences on both the ambiguity aversion/preference and ambiguity-generated insensitivity to likelihood changes. These two dimensions of ambiguity attitude were measured using matching probabilities for three-fold partitioned events without needing information about subjective likelihoods. Our experiment was held in Rome, and we ran six sessions with three different treatments associated with diverse natural sources of uncertainty (i.e., the COVID-19 pandemic, sovereign interest spread, and football matches) considering different national scenarios (France and Italy). The experimental hypothesis was that each decision context could be characterised by different degrees of emotional involvement and different knowledge/competence of the participants. Additionally, all the participants faced an artificial source of uncertainty, which was always represented by the original Ellsberg’s three-colour problem framed in the same way as the natural source of uncertainty. The study found that, within treatments, participants were generally more ambiguity-averse (they did not like uncertainty) when facing the artificial source than natural sources of uncertainty. However, they were less sensitive to likelihood changes (i.e., cognitively less able to assess changes in probability levels) for natural than artificial sources. Our findings provide partial evidence in favour of source preference with stronger ambiguity aversion for the Ellsberg scenario than the natural ones in two out of three natural sources; hence, our paper shows that ambiguity aversion/preference depends on the source of uncertainty. Moreover, our results provide strong evidence in favour of source sensitivity; thereby, ambiguity-generated insensitivity is influenced by the inner characteristics of the different natural sources of uncertainty.

Keywords: Natural sources of ambiguity; Artificial sources of ambiguity; Source preference; Source sensitivity; Ellsberg paradox (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Testing Source Influence on Ambiguity Reaction: Preference and Insensitivity (2023)
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DOI: 10.1007/s11166-024-09444-4

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