Estimating Ambiguity Aversion in a Portfolio Choice Experiment

Shachar Kariv, Syngjoo Choi, Douglas Gale () and David Ahn

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

Abstract: We report a laboratory experiment that enables us to estimate parametric models of ambiguity aversion at the level of the individual subject. We use two main specifications, a “kinked” specification that nests Maxmin Expected Utility, Choquet Expected Utility, α-Maxmin Expected Utility, and Contraction Expected Utility and a “smooth” specification that nests the various theories referred to collectively as Recursive Expected Utility. Our subjects solved a series of portfolio-choice problems. The assets are Arrow securities corresponding to three states of nature, where the probability of one state is known and the remaining two are ambiguous. The sample exhibits considerable heterogeneity in preferences, as captured by parameter estimates. Nonetheless, there exists a strong tendency to equalize the demands for the securities that pay off in the ambiguous states, a feature more easily accommodated by the kinked specification than by the smooth specification. We also find that a large number of subjects are well described by the ambiguity-neutral Subjective Expected Utility model.

Keywords: uncertainty; ambiguity aversion; Subjective Expected Utility; Maxmin Expected Utility; ?-Maxmin Expected Utility; Choquet Expected Utility; Contraction Expected Utility; Recursive Expected Utility; experiment.; Social and Behavioral Sciences; Other Economics (search for similar items in EconPapers)
Date: 2009-02-27
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Citations: View citations in EconPapers (16)

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Related works:
Journal Article: Estimating ambiguity aversion in a portfolio choice experiment (2014)
Working Paper: Estimating Ambiguity Aversion in a Portfolio Choice Experiment (2013)
Working Paper: Estimating Ambiguity Aversion in a Portfolio Choice Experiment (2008)
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