Attitudes to ambiguity in one-shot normal-form games: An experimental study

Ivanov, Asen

doi:10.1016/j.geb.2010.05.009

Cited by 44 publications

(21 citation statements)

References 42 publications

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“…1 See for instance Colman and Pulford (2007), Eichberger, Kelsey, and Schipper (2008), Ivanov (2011), Kelsey and le Roux (2013) or Di Mauro and Castro (2011). 2 The theory is based on earlier research by Dow and Werlang (1994) and Eichberger and Kelsey (2000).…”

Section: Introductionmentioning

confidence: 99%

An experimental study on the effect of ambiguity in a coordination game

Kelsey

Roux

2015

Theory Decis

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We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game. We study the behaviour of subjects in the presence of ambiguity and attempt to determine whether they prefer to choose an ambiguity safe option. We …nd that this strategy, which is not played in either Nash equilibrium or iterated dominance equilibrium, is indeed chosen quite frequently. This provides evidence that ambiguity aversion in ‡uences behaviour in games. While the behaviour of the Row Player is consistent with randomising between her strategies, the Column Player shows a marked preference for avoiding ambiguity and choosing his ambiguity-safe strategy.Keywords: Ambiguity; Choquet expected utility; coordination game; Ellsberg urn, experimental economics.JEL Classi…cation: C72; C91; D03; D81We would like to thank Dieter Balkenborg, Adam Dominiak, Peter Dursch, Jürgen Eichberger, Todd Kaplan, Joshua Teitelbaum, Horst Zank, participants in seminars in Bristol, Exeter, Manchester and RUD Paris, and some anonymous referees for their comments and suggestions. We would like to thank Tim Miller for programming our Ellsberg Urn simulator.y This paper is based on a chapter from Sara le Roux's PhD thesis.

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Section: Introductionmentioning

confidence: 99%

An experimental study on the effect of ambiguity in a coordination game

Kelsey

Roux

2015

Theory Decis

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“…Viscusi and Chesson (1999) found that people exhibit 'fear' effects of ambiguity for small probabilities of suffering a loss and 'hope' effects for large probabilities of loss.F 1 F Considering investors in the stock market, where the probability of loss is relatively high (around 50%), one would expect to observe ambiguity loving. Ivanov (2011) shows that more individuals exhibit ambiguity loving than ambiguity aversion. In particular, 32% are classified as ambiguity-loving, compared to 22% who are classified as ambiguity averse, the remaining 46% are considered ambiguity neutral.…”

Section: Introductionmentioning

confidence: 99%

Asset Pricing and Ambiguity: Empirical Evidence

Brenner

Izhakian

2012

SSRN Journal

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Modern portfolio theory focuses on the relationship between risk and return, assuming away ambiguity, uncertainty over the probability space. This paper assumes that ambiguity affects asset prices and tests the relationship between risk, ambiguity and return based on a model developed by Izhakian (2011). Its contribution is twofold; it proposes an ambiguity measure that is derived theoretically and computed from stock market prices. Second, it uses ambiguity in conjunction with risk to test the basic relationship between risk, ambiguity and return. This paper finds that ambiguity has a consistently negative effect on returns and risk mostly has a positive effect. Asset Pricing and Ambiguity: Empirical Evidence AbstractModern portfolio theory focuses on the relationship between risk and return, assuming away ambiguity, uncertainty over the probability space. This paper assumes that ambiguity affects asset prices and tests the relationship between risk, ambiguity and return based on a model developed by Izhakian (2011). Its contribution is twofold; it proposes an ambiguity measure that is derived theoretically and computed from stock market prices. Second, it uses ambiguity in conjunction with risk to test the basic relationship between risk, ambiguity and return. This paper finds that ambiguity has a consistently negative effect on returns and risk mostly has a positive effect. JEL Classification Codes: D51, D81, G12.Key Words: Ambiguity, Ambiguity measure, Knightian uncertainty, Equity premium. IntroductionThe fundamental relationship between risk and return of the market portfolio in the mean-variance paradigm is given by the following equation where m r is the return on the market portfolio, f r is the risk free rate, 2 m  is the risk of the market portfolio and     is a measure of risk aversion of a representative agent (or, an aggregation of risk aversion coefficients of investors). This linear relationship has been subjected to several time series empirical tests. Merton (1980) and French, Schwert and Stambaugh (1987) are two classic examples of studies that conducted such tests. While Merton (1980) focuses on estimation issues with the expected market return, French at al. (1987) focus more on alternative measures of risk (volatility). In general, the tests of the risk-return relationship have low R 2 and some of these tests result in negative coefficients of absolute risk aversion.We believe that a missing factor that determines the expected excess return presented in equation (1) is ambiguity (the so called Knightian uncertainty) and the attitude towards it.Though there is an abundance of research on various aspects of ambiguity and ambiguity aversion, there is almost no empirical work providing a measure of ambiguity and incorporating such a measure in tests of the relationship between risk and return.In this paper we introduce a measure of ambiguity, which is an additional factor determining the expected excess market return (also termed the equity premium). Equation (2) below is the e...

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“…The data was drawn from Ivanov (2006), Stahl and Wilson (1995), Binmore et al (2001), Rey Biel (2004 and Tang (2001) which utilize a variety of 3 × 3 games with different properties. Biel (2004) presented ten games to subjects, all of which exhibited a unique PSNE but differed in regards to how many, if any, levels of iterated dominance were necessary to solve the games.…”

Section: Comparison Of Nn Behavior To Human Subject Experimental Studiesmentioning

confidence: 99%

Neural Networks as a Learning Paradigm for General Normal Form Games

Spiliopoulos

2010

SSRN Journal

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This paper addresses how neural networks learn to play one-shot normal form games through experience in an environment of randomly generated game payoffs and randomly selected opponents. This agent based computational approach allows the modeling of learning all strategic types of normal form games, irregardless of the number of pure and mixed strategy Nash equilibria that they exhibit. This is a more realistic model of learning than the oft used models in the game theory learning literature which are usually restricted either to repeated games against the same opponent (or games with different payoffs but belonging to the same strategic class). The neural network agents were found to approximate human behavior in experimental one-shot games very well as the Spearman correlation coefficients between their behavior and that of human subjects ranged from 0.49 to 0.8857 across numerous experimental studies. Also, they exhibited the endogenous emergence of heuristics that have been found effective in describing human behavior in one-shot games. The notion of bounded rationality is explored by varying the topologies of the neural networks, which indirectly affects their ability to act as universal approximators of any function. The neural networks' behavior was assessed across various dimensions such as convergence to Nash equilibria, equilibrium selection and adherence to principles of iterated dominance.

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Attitudes to ambiguity in one-shot normal-form games: An experimental study

Cited by 44 publications

References 42 publications

An experimental study on the effect of ambiguity in a coordination game

An experimental study on the effect of ambiguity in a coordination game

Asset Pricing and Ambiguity: Empirical Evidence

Neural Networks as a Learning Paradigm for General Normal Form Games

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