You Need to Recognize Ambiguity to Avoid it

Ambiguity aversion and household portfolio choice puzzles: Empirical evidence

“…Although the magnitudes of the correlations are not large, Panel D of Table 3 shows that ambiguity aversion is positively correlated with college education and negatively correlated with errors on the check questions. This is consistent with other population studies such as Butler, Guiso, and Jappelli (2014) and Chew, Ratchford, and Sagi (2013). Moreover, the correlations are directionally inconsistent with the mistake view and thus provide indirect support for the preference view.…”

Ambiguity attitudes, framing, and consistency

“…Our finding that the prevalence of ambiguity aversion does not depend on consistency is contrary to Chew et al (2013), who find that ambiguity aversion is more prevalent among "sophisticated, competent choosers", and to Stahl (2014), who finds that ambiguity aversion is less prevalent among consistent choosers. Our finding that a substantial share of consistent choosers choose in line with ambiguity aversion also contrasts with Charness et al (2013), who find very little ambiguity aversion among consistent choosers.…”

“…We conjectured that this is due to the fact that some subjects find it difficult to grasp that in the two-winning-colour variants, W &B k is the option with known probabilities and R&W a is the ambiguous option. Our conjecture gains support from Chew et al (2013), who provide evidence that few subjects are able to discern ambiguity in more complex cases, but that those who do recognize ambiguity are generally ambiguity averse in a gain frame. The difficulty in recognizing ambiguity in the more complex, two-winning-colour choices is therefore an alternative candidate explanation for the observed disparity in ambiguity aversion between single-urn and two-urn experiments.…”

“…Similarly, if one excludes the 60 % of subjects classified as "random choosers" from Stahl (2014), then 75 % of the remaining subjects are ambiguity neutral and 25 % are ambiguity averse. 8 By contrast, Chew et al (2013) find a far higher rate of ambiguity aversion among "high comprehension" subjects (69 %) than among "low comprehension" or "inattentive" subjects (48 %).…”

“…The literature also finds that ambiguity aversion is not robust to changes in framing, with subjects being more ambiguity loving when faced with losses (Trautmann and Van der Kuijlen 2016). It also suggests that some subjects find it hard to recognize ambiguity, so that emphasizing it generates a stronger response (Chew et al 2013). In this paper, we examine whether these findings hold up by reframing one of Ellsberg's experiments in terms of losses rather than gains and by emphasizing ambiguity.…”