Work

Unraveling Ambiguity Aversion

Year: 2023

Type: article

Abstract: 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, entailing different degrees of complexity, from subjects with different sophistication levels. We show that (1) ambiguity aversion is robust to sophistication, but the strong relationship previously reported between attitudes toward ambiguity and compound risk is not and (2) Ellsberg ambiguity attitude can be partly explained by attitudes toward complexity for less sophisticated subjects only. Overall, regardless of the subject’s sophistication level, the main driver of Ellsberg ambiguity attitude is a specific treatment of unknown probabilities.

Source: The Review of Economics and Statistics

DOI: 10.1162/rest_a_01358

Authors: Ilke Aydogan, Loïc Berger, Valentina Bosetti