Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach

Noemi Pace, Giuseppe Attanasi, Christian Gollier () and Aldo Montesano

No 2012_23, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: We define coherent-ambiguity aversion within the Klibanoff, Marinacci and Mukerji (2005) smooth ambiguity model (henceforth KMM) as the combination of choice-ambiguity aversion and value-ambiguity aversion. We analyze theoretically five ambiguous decision tasks, where a subject faces two-stage lotteries with binomial, uniform or unknown second-order probabilities. We check our theoretical predictions through a 10-task laboratory experiment. In (unambiguous) tasks 1-5, we elicit risk aversion both through a portfolio choice method and through a BDM mechanism. In (ambiguous) tasks 6-10, we elicit choice-ambiguity aversion through the portfolio choice method and value-ambiguity aversion through the BDM mechanism. We find that more than 75% of classified subjects behave according to the KMM model in all tasks 6-10, independent of their degree of risk aversion. Further, the percentage of coherently-ambiguity-averse subjects is lower in the binomial than in the uniform and in the unknown treatment, with only the latter difference being significant. Finally, highly-risk-averse subjects are more prone to coherent-ambiguity.

Keywords: coherent-ambiguity aversion; value-ambiguity aversion; choice-ambiguity aversion; smooth ambiguity model; binomial distribution; uniform distribution; unknown urn. (search for similar items in EconPapers)
JEL-codes: C91 D81 D83 (search for similar items in EconPapers)
Pages: 45
Date: 2012
New Economics Papers: this item is included in nep-exp and nep-upt
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Related works:
Working Paper: Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach (2012)
Working Paper: Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach (2012)
Working Paper: Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach (2012)
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