Disentangling Drivers of Ambiguity Attitudes *

Mohammed Abdellaoui, Brian Hill and Sarat Chandra Akella
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Mohammed Abdellaoui: HEC Paris - Ecole des Hautes Etudes Commerciales
Sarat Chandra Akella: HEC Paris - Ecole des Hautes Etudes Commerciales

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Abstract: A popular framework for ambiguity represents alternatives of choice as twostage gambles reflecting the uncertainty about the true probability on the state space. In this framework, ambiguity-averse behaviour could be driven by differences in utilities between stages-as in the smooth ambiguity model (Klibanoff et al., 2005)-or by non-linear probability weighting-as in a line of research initiated by Segal (1987). The present paper investigates the relevance of these distinct drivers of ambiguity attitudes in a two-stage setup by estimating a generalization of the smooth ambiguity model incorporating probability weighting. Our experiment reveals the relevance of both factors to describing ambiguity attitudes. We also report evidence of stakes-dependence of ambiguity attitudes, as implied by utility-driven approaches.

Keywords: Ambiguity; ambiguity aversion; probability weighting; rank-dependent utility; recursive expected utility; smooth ambiguity model (search for similar items in EconPapers)
Date: 2024-08-26
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Working Paper: Disentangling Drivers of Ambiguity Attitudes (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04759303

DOI: 10.2139/ssrn.4916177

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