Theory and Decision

, Volume 77, Issue 4, pp 485–530 | Cite as

Eliciting ambiguity aversion in unknown and in compound lotteries: a smooth ambiguity model experimental study

  • Giuseppe Attanasi
  • Christian Gollier
  • Aldo Montesano
  • Noemi Pace
Article

Abstract

Coherent-ambiguity aversion is defined within the (Klibanoff et al., Econometrica 73:1849–1892, 2005) smooth-ambiguity model (henceforth KMM) as the combination of choice-ambiguity and value-ambiguity aversion. Five ambiguous decision tasks are analyzed theoretically, where an individual faces two-stage lotteries with binomial, uniform, or unknown second-order probabilities. Theoretical predictions are then tested through a 10-task experiment. In (unambiguous) tasks 1–5, risk aversion is elicited through both a portfolio choice method and a BDM mechanism. In (ambiguous) tasks 6–10, choice-ambiguity aversion is elicited through the portfolio choice method, while value-ambiguity aversion comes about through the BDM mechanism. The behavior of over 75 % of classified subjects is in line with the KMM model in all tasks 6–10, independent of their degree of risk aversion. Furthermore, the percentage of coherent-ambiguity-averse subjects is lower in the binomial than in the uniform and in the unknown treatments, with only the latter difference being significant. The most part of coherent-ambiguity-loving subjects show a high risk aversion.

Keywords

Coherent-ambiguity aversion Value-ambiguity aversion   Choice-ambiguity aversion Smooth ambiguity model Binomial distribution Uniform distribution Unknown urn 

JEL Classification

D81 D83 C91 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  • Giuseppe Attanasi
    • 1
  • Christian Gollier
    • 2
  • Aldo Montesano
    • 3
  • Noemi Pace
    • 4
  1. 1.University of Strasbourg (BETA)StrasbourgFrance
  2. 2.Toulouse School of EconomicsToulouseFrance
  3. 3.Bocconi UniversityMilanItaly
  4. 4.University Ca’ Foscari of VeniceVeniceItaly

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