Journal of Risk and Uncertainty

, Volume 46, Issue 1, pp 1–25 | Cite as

Ambiguity attitudes and social interactions: An experimental investigation

Article

Abstract

This paper reports the results of experiments testing prevalence of non-neutral ambiguity attitudes and how these attitudes change as a result of interpersonal interactions. To address the first question we conducted experiments involving individual choice between betting on ambiguous and unambiguous events of the subject’s choice. We found that a large majority of subjects display ambiguity neutral attitudes, many others display ambiguity incoherent attitudes, and few subjects display either ambiguity-averse attitudes or ambiguity-seeking attitudes. To address the second question we designed a new experiment with a built-in incentive to persuade. We found that interpersonal interactions without incentives to persuade have no effect on behavior. However, when incentives were introduced, the ambiguity neutral subjects were better able to persuade ambiguity seeking and ambiguity incoherent subjects to adopt ambiguity neutral choice behavior and, to a lesser extent, also ambiguity averse subjects.

Keywords

Ambiguity aversion Ambiguity attitudes Ellsberg paradox 

JEL Classification

D81 C91 C92 

References

  1. Ahn, D., Syngjoo, C., Gale, D., Kariv, S. (2011). Estimating ambiguity aversion in a portfolio choice experiment. Working paper.Google Scholar
  2. Abdellaoui, M., Baillon, A., Placido, L., Wakker, P.P. (2011). The rich domain of uncertainty: source functions and their experimental implementation. American Economic Review, 101(2), 695–723.CrossRefGoogle Scholar
  3. Akay, A., Martinsson, P., Medhin, H., Trautmann, S.T. (2011). Attitudes toward uncertainty among the poor: an experiment in rural Ethiopia. Theory and Decision (forthcoming).Google Scholar
  4. Becker, S., & Brownson, F. (1964). What price ambiguity? Or the role of ambiguity in decision making. Journal of Political Economy, 74, 801–802.Google Scholar
  5. Binmore, K., Stewart, L., Voorhoeve, A. (2012). An experiment on the Ellsberg paradox. Journal of Risk and Uncertainty, 45, 215–238.CrossRefGoogle Scholar
  6. Bossaerts, P., Ghirardato, P., Guarnaschelli, S., Zame, W. (2010). Ambiguity in asset markets: theory and experiment. Review of Financial Studies, 23, 1325–1359.CrossRefGoogle Scholar
  7. Camerer, C., & Weber, M. (1992). Recent development in modeling preferences: uncertainty and ambiguity. Journal of Risk and Uncertainty, 5, 325–370.CrossRefGoogle Scholar
  8. Charness, G., & Gneezy, U. (2010). Portfolio choice and risk attitudes. Economic Inquiry, 48, 133–146.CrossRefGoogle Scholar
  9. Charness, G., Karni, E., Levin, D. (2007). Individual and group decision making under risk: an experimental study of Bayesian updating and violations of first-order stochastic dominance. Journal of Risk and Uncertainty, 35, 129–148.CrossRefGoogle Scholar
  10. Charness, G., Karni, E., Levin, D. (2010). On the conjunction fallacy in probability judgment: new experimental evidence regarding Linda. Games and Economic Behavior, 68, 551–556.CrossRefGoogle Scholar
  11. Chew, S.H., Ebstein, R.P., Zhong, S. (2012). Ambiguity aversion and familiarity bias: evidence from behavioral and gene association studies. Journal of Risk and Uncertainty, 44, 1–18.CrossRefGoogle Scholar
  12. Chow, C.C., & Sarin, R.K. (2001). Comparative ignorance and the Ellsberg paradox. Journal of Risk and Uncertainty, 22, 129–139.CrossRefGoogle Scholar
  13. Cooper, D.J., & Kagel, J.H. (2005). Are two heads better than one? Team versus individual play in signaling games. American Economic Review, 95, 477–509.CrossRefGoogle Scholar
  14. Ellsberg, D. (1961). Risk, ambiguity and the savage axioms. Quarterly Journal of Economics, 75, 643–669.CrossRefGoogle Scholar
  15. Frohlich, N., Oppenheimer, J., Moore, B. (2001). Some doubts about measuring self-interest using dictator experiments: the costs of anonymity. Journal of Economic Behavior and Organization, 46, 271–290.CrossRefGoogle Scholar
  16. Fox, C.R., & Tversky, A. (1995). Ambiguity aversion and comparative ignorance. The Quarterly Journal of Economics, 110, 585–603.CrossRefGoogle Scholar
  17. Gerther, D.M., & Plott, C.R. (1979). Economic theory of choice and the revealed preference phenomenon. American Economic Review, 69, 623–638.Google Scholar
  18. Gilboa, I., & Schmeidler, D. (1989). Maxmin expected utility with non-unique prior. Journal of Mathematical Economics, 18, 141–153.CrossRefGoogle Scholar
  19. Greiner, B. (2004). An online recruitment system for economic experiments. In K. Kremer, & V. Macho (Eds.), (Hrsg.): Forschung und wissenschaftliches Rechnen, GWDG Bericht (Vol. 63, pp. 79–93). Göttingen: Ges. für Wiss. Datenverarbeitung.Google Scholar
  20. Halevy, Y. (2007). Ellsberg revisited: an experimental study. Econometrica, 75, 503–506.CrossRefGoogle Scholar
  21. Hsu, M., Bhatt, M., Adolphs, R., Tranel, D., Camerer, C. (2005). Neural systems responding to degrees of uncertainty in human decision-making. Science, 310(5754), 1680–1683.CrossRefGoogle Scholar
  22. Keck, S., Diecidue, E., Budescu, D. (2011). Group decision making under ambiguity. Working paper.Google Scholar
  23. Keller, R.L., Sarin, R.K., Sounderpadian, S.J. (2009). An examination of ambiguity aversion: are two heads better than one? Judgement and Decision Making, 2, 390–397.Google Scholar
  24. Klibanoff, P., Marinacci, M., Sujoy, M. (2005). A smooth model of decision making under ambiguity. Econometrica, 73, 1849–1892.CrossRefGoogle Scholar
  25. Lichtenstein, S., & Slovic, P. (1971). Reversal of preferences between bids and choices in gambling decisions. Journal of Experimental Psychology, 89, 46–55.CrossRefGoogle Scholar
  26. Liu, H.H., & Colman, A.M. (2009). Ambiguity aversion in the long run: repeated decision making under risk and uncertainty. Journal of Economic Psychology, 30, 277–284.CrossRefGoogle Scholar
  27. MacCrimmon, K.R. (1968). Descriptive and normative implications of the decision-theory postulates. In K. Borch, & J. Mossin (Eds.), Risk and uncertainty. London: MacMillan.Google Scholar
  28. MacCrimmon, K.R., & Larsson, S. (1979). Utility theory: Axioms versus paradoxes. In M. Allais, & O. Hagen (Eds.), Expected utility and the Allais paradox (pp. 333–409). Dordrecht, Holland: D. Reidel.CrossRefGoogle Scholar
  29. Schmeidler, D. (1989). Subjective probability and expected utility without additivity. Econometrica, 57, 571–588.CrossRefGoogle Scholar
  30. Seo, K. (2009). Ambiguity and second order beliefs. Econometrica, 77(5), 1575–1605.CrossRefGoogle Scholar
  31. Trautmann, S.T., Vieider, F.M., Wakker, P.P. (2011). Preference reversals for ambiguity aversion. Management Science, 57, 1320–1333.CrossRefGoogle Scholar
  32. Wakker, P.P. (2010). Prospect theory: for risk and ambiguity. Cambridge, UK: Cambridge University Press.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of CaliforniaSanta BarbaraUSA
  2. 2.Department of EconomicsJohns Hopkins UniversityBaltimoreUSA
  3. 3.Department of EconomicsOhio State UniversityColumbusUSA

Personalised recommendations