Ambiguity Attitudes in a Large Representative Sample

Abstract

We introduce a tractable method for measuring ambiguity attitudes, which requires only three observations and five minutes per subject, and we apply this method in a large representative sample. In addition to ambiguity aversion, we confirm a-insensitivity, a new ambiguity component recently found in laboratory studies. A-insensitivity means that people insufficiently discriminate between different levels of likelihood, often treating all likelihoods as fifty-fifty, which results in the overweighting of extreme events. Our ambiguity measurements can predict real economic decisions of the subjects; specifically a-insensitivity has a negative relation with stock market participation and private business ownership. Surprisingly, ambiguity aversion is not significantly related to stock market participation, except under high ambiguity perception. Reference dependence can explain our findings, and provides a promising direction for future research on ambiguity.

Giving in the face of risk

“…Note that problem 6-Ambiguity (7-Ambiguity) is the ambiguous equivalent of problem 2-Risk (4-Risk). We do not have model-based predictions but since individuals are usually ambiguity averse (see, e.g., Ellsberg 1961;Dimmock et al 2015), we considered that ambiguity may have similar effects as increased risk aversion in allocation problems under risk. Table 11 shows descriptive statistics on giving in the presence of ambiguity.…”

Stake effects on ambiguity attitudes for gains and losses

“…Recently, Dimmock et al (2015) found that stock market participation, as well as the ownership of small businesses, is negatively correlated with ambiguity-induced insensitivity. To the extent that such slopes become more extreme as stakes increase, this may, indeed, be an important factor for the explanation of such decisions, given the overestimation of small probabilities of losses and underestimation of moderateto-large probabilities of gains that derive from it.…”

Ambiguity attitudes, framing, and consistency

“…9 The aim of 7 For example, Stahl (2014), finds that 60 % of subjects choose close to randomly; Charness et al (2013) find that 20 % of subjects choose incoherently; Duersch et al (2013) find that, after a short interval, 29 % choose differently in repetitions of the same question; and Dimmock et al (2015) find that up to 45 % do not choose according to their previously stated preferences. 8 If one views adherence to the compound lottery axiom as a requirement of rationality, then the results in Halevy (2007) show that ambiguity aversion is absent among those who are rational in this sense.…”

“…9 A probability-matching approach is also used in MacCrimmon and Larsson (1979), Kahn and Sarin (1988), and Viscusi and Magat (1992). Dimmock et al (2015) provide theoretical support for this method. Fig.…”