Characterizing ambiguity attitudes using model uncertainty

Abstract

We report the results of an experiment eliciting individuals' attitudes toward risk and model uncertainty. Using a joint elicitation procedure, we then precisely quantify the strength of individuals' attitude toward ambiguity in the context of the smooth model and characterize its main properties. Our results provide empirical evidence of decreasing absolute ambiguity aversion (DAAA) and constant relative ambiguity aversion (CRAA). These results shed new light on the way ambiguity attitudes may affect important decisions, such as the choice of health insurance policies or the optimal investment strategy in the face of climate change.

Vaccination under pessimistic expectations in clinical trials and immunization campaigns

“…Finally, ambiguity aversion encourages individuals to increase their level of effort. This result is similar to the ones obtained by Alary et al ( 2013 ) or Berger and Bosetti ( 2020 ) in different contexts.…”

Risk, Ambiguity, and the Value of Diversification

“…whether a DM is willing to save more because of the presence of ambiguity; seeBerger, 2014). DAAA is also supported empirically byBerger and Bosetti (2020).…”

Foundations of ambiguity models under symmetry: α-MEU and smooth ambiguity

“…Before proceeding, it is important to point out that imposing expected utility axioms on F Ψ does not imply that the individual views events in Σ Ψ as unambiguous nor that the individual is ambiguity neutral when evaluating such acts. 8 A final, more technical addition is a Cauchy continuity axiom important in ensuring the existence of a monotonic and norm-continuous extension of preferences from the simple acts, F, to the bounded acts, F, which is used in connecting preferences on F Ψ to preferences on all simple acts. What differentiates the two characterizations is the axioms imposed on preferences restricted to F Ψ .…”

“…3 The smooth ambiguity model need not satisfy constant ambiguity aversion (either absolute or relative) and generally violates Certainty Independence (see e.g., Klibanoff, Marinacci and Mukerji [38] for discussion in this regard). Baillon and Placido [7] and Berger and Bosetti [8] provide experimental evidence on non-constant ambiguity aversion.…”