UNRAVELING AMBIGUITY AVERSION
Ilke Aydogan (),
Loïc Berger () and
Valentina Bosetti ()
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Ilke Aydogan: IESEG School of Management, Univ. Lille, CNRS, UMR 9221 - LEM - Lille Economie Management, F-59000 Lille, France; and iRisk Research Center on Risk and Uncertainty
Loïc Berger: CNRS, Univ. Lille, IESEG School of Management, UMR 9221 - LEM - Lille Economie Management, F-59000 Lille, France; iRisk Research Center on Risk and Uncertainty; RFF-CMCC European Institute on Economics and the Environment (EIEE), and Centro Euro-Mediterraneo sui Cambiamenti Climatici, Italy
Valentina Bosetti: Department of Economics and IGIER, Bocconi University, and RFF-CMCC European Institute on Economics and the Environment (EIEE), Centro Euro-Mediterraneo sui Cambiamenti Climatici, Italy
Working Papers from IESEG School of Management
We report the results of two experiments designed to better understand the mechanisms driving decision-making under ambiguity. We elicit individual preferences over different sources of uncertainty (risk, compound risk, model ambiguity, and Ellsberg ambiguity), which entail different degrees of complexity, from subjects with different sophistication levels. We show that (1) ambiguity aversion is robust to sophistication, but the strong relationship that has been previously reported between attitudes toward ambiguity and compound risk is not. (2) Ellsberg ambiguity attitude can be partly explained by attitudes toward complexity for less sophisticated subjects, but not for more sophisticated ones. Overall, and regardless of the subject’s sophistication level, the main driver of Ellsberg ambiguity attitude is a specific treatment of unknown probabilities. These results leave room for using ambiguity models in applications with prescriptive purposes.
Keywords: : Ambiguity aversion; reduction of compound risk; model uncertainty; complexity (search for similar items in EconPapers)
JEL-codes: C91 C93 D81 (search for similar items in EconPapers)
Pages: 43 pages
New Economics Papers: this item is included in nep-exp and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:ies:wpaper:e202301
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