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

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 ?ve 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 ?nd that more than 75% of classi?ed 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 signi?cant. Finally, highly-risk-averse subjects are more prone to coherent-ambiguity.

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Replaced by

Giuseppe Marco Attanasi, Christian Gollier, Aldo Montesano, and Noémie Pace, “Eliciting ambiguity aversion in unknown and in compound lotteries: A smooth ambiguity model experimental study”, Theory and Decision, vol. 77, n. 4, December 2014, pp. 485–530.

Reference

Giuseppe Marco Attanasi, Christian Gollier, Aldo Montesano, and Noémie Pace, “Eliciting ambiguity aversion in unknown and in compound lotteries: A KMM experimental approach”, TSE Working Paper, n. 12-338, September 15, 2012.