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Individual attitudes and market dynamics towards imprecision

Christoph Huber () and Julia Rose ()

Working Papers from Faculty of Economics and Statistics, University of Innsbruck

Abstract: In real world financial markets, dividend processes as well as fundamental values are governed by imprecision; neither the objective probabilities of returns nor the actual amounts of possible returns are known for certain. With a novel experimental approach, we analyze the impact of risk, imprecision in probabilities (ambiguity), imprecision in outcomes, and a combination of the latter two in an individual decision task and in a market environment. In contrast to the previous literature, we do not find any significant imprecision premia for imprecise probabilities. However, we do find significant and persistent imprecision-in-outcomes seeking in the individual task as well as the market setting. Looking deeper into the combination of individual attitudes and market behavior, we find that these patterns survive despite a high level of heterogeneity in individual's beliefs about outcomes.

Keywords: ambiguity aversion; imprecision; uncertainty; asset markets; experimental finance (search for similar items in EconPapers)
JEL-codes: G11 G12 C92 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-exp and nep-upt
Date: 2019-06
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