Ellsberg Re-revisited: An Experiment Disentangling Model Uncertainty and Risk Aversion

Loïc Berger and Valentina Bosetti

No 2016.37, Working Papers from Fondazione Eni Enrico Mattei

Abstract: The results of an experiment extending Ellsberg's setup demonstrate that attitudes towards ambiguity and compound uncertainty are closely related. However, this association is much stronger when the second layer of uncertainty is subjective than when it is objective. Provided that the compound probabilities are simple enough, we find that most subjects, consisting of both students and policy makers, (1) reduce compound objective probabilities, (2) do not reduce compound subjective probabilities, and (3) are ambiguity non-neutral. By decomposing ambiguity into risk and model uncertainty, and jointly eliciting the attitudes individuals manifest towards these two types of uncertainty, we characterize individuals' degree of ambiguity aversion. Our data provides evidence of decreasing absolute ambiguity aversion and constant relative ambiguity aversion.

Keywords: Ambiguity Aversion; Model Uncertainty; Reduction of Compound Lotteries; Non-expected Utility; Subjective Probabilities; Decreasing Absolute Ambiguity Aversion (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2016-05
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-neu and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://feem-media.s3.eu-central-1.amazonaws.com/w ... oads/NDL2016-037.pdf (application/pdf)

Related works:
Working Paper: Ellsberg Re-revisited: An Experiment Disentangling Model Uncertainty and Risk Aversion (2016)
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:fem:femwpa:2016.37

Access Statistics for this paper

More papers in Working Papers from Fondazione Eni Enrico Mattei Contact information at EDIRC.
Bibliographic data for series maintained by Alberto Prina Cerai ( this e-mail address is bad, please contact ).