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Ambiguity in Individual Choice and Market Environments: On the Importance of Comparative Ignorance

Jonathan Alevy ()

No 2011-04, Working Papers from University of Alaska Anchorage, Department of Economics

Abstract: After Ellsberg’s thought experiments brought focus to the relevance of missing information for choice, extensive efforts have been made to understand ambiguity theoretically and empirically (Ellsberg 1961). Fox and Tversky (1995) make an important contribution to understanding behavioral responses to ambiguity. In an individual choice setting they demonstrate that an aversion to ambiguous lotteries arises only when a comparison to unambiguous lotteries is available. The current study advances this literature by exploring the importance of Fox and Tversky’s finding for market outcomes and finds support for their Comparative Ignorance Hypothesis in the market setting.

Keywords: ambiguity; asset market experiment; comparitive ignorance (search for similar items in EconPapers)
JEL-codes: C91 C92 D81 G12 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-exp, nep-mic, nep-neu and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ala:wpaper:2011-04

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