Ambiguity Attitudes in a Large Representative Sample

Using a theorem showing that matching probabilities of ambiguous events can capture ambiguity attitudes, we introduce a tractable method for measuring ambiguity attitudes and apply it in a large representative sample. In addition to ambiguity aversion, we confirm an ambiguity component recently foun...

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Bibliographic Details
Published inManagement science Vol. 62; no. 5; pp. 1363 - 1380
Main Authors Dimmock, Stephen G., Kouwenberg, Roy, Wakker, Peter P.
Format Journal Article
LanguageEnglish
Published Linthicum INFORMS 01.05.2016
Institute for Operations Research and the Management Sciences
Subjects
Ambiguity
ambiguity aversion
Attitudes
Knightian uncertainty
nonexpected utility
nonparticipation
portfolio choice
Probability
reference dependence
Securities markets
stock market participation
Theorems
uncertainty
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ISSN0025-1909
1526-5501
DOI10.1287/mnsc.2015.2198

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Summary:Using a theorem showing that matching probabilities of ambiguous events can capture ambiguity attitudes, we introduce a tractable method for measuring ambiguity attitudes and apply it in a large representative sample. In addition to ambiguity aversion, we confirm an ambiguity component recently found in laboratory studies: a-insensitivity, the tendency to treat subjective likelihoods as 50-50, thus overweighting extreme events. Our ambiguity measurements are associated with real economic decisions; specifically, a-insensitivity is negatively related to stock market participation. Ambiguity aversion is also negatively related to stock market participation, but only for subjects who perceive stock returns as highly ambiguous. This paper was accepted by James Smith, decision analysis .
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ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.2015.2198