Recursive expected utility and the separation of attitudes towards risk and ambiguity: an experimental study [Book Review]

Theory and Decision 66 (3):199-228 (2008)
  Copy   BIBTEX

Abstract

We use the multiple price list method and a recursive expected utility theory of smooth ambiguity to separate out attitude towards risk from that towards ambiguity. Based on this separation, we investigate if there are differences in agent behaviour under uncertainty over gain amounts vis-a-vis uncertainty over loss amounts. On an aggregate level, we find that (i) subjects are risk averse over gains and risk seeking over losses, displaying a “reflection effect” and (ii) they are ambiguity neutral over gains and are mildly ambiguity seeking over losses. Further analysis shows that on an individual level, and with respect to both risky and ambiguous prospects, there is limited incidence of a reflection effect where subjects are risk/ambiguity averse (seeking) in gains and seeking (averse) in losses, though this incidence is higher for ambiguous prospects. A very high proportion of such cases of reflection exhibit risk (ambiguity) aversion in gains and risk (ambiguity) seeking in losses, with the reverse effect being significantly present in the case of risk but almost absent in case of ambiguity. Our results suggest that reflection across gains and losses is not a stable individual characteristic, but depends upon whether the form of uncertainty is precise or ambiguous, since we rarely find an individual who exhibits reflection in both risky and ambiguous prospects. We also find that correlations between attitudes towards risk and ambiguity were domain dependent

Other Versions

No versions found

Links

PhilArchive

    This entry is not archived by us. If you are the author and have permission from the publisher, we recommend that you archive it. Many publishers automatically grant permission to authors to archive pre-prints. By uploading a copy of your work, you will enable us to better index it, making it easier to find.

    Upload a copy of this work     Papers currently archived: 102,394

External links

Setup an account with your affiliations in order to access resources via your University's proxy server

Through your library

Similar books and articles

Participation in risk sharing under ambiguity.Jan Werner - 2020 - Theory and Decision 90 (3-4):507-519.

Analytics

Added to PP
2013-12-01

Downloads
75 (#285,046)

6 months
6 (#797,367)

Historical graph of downloads
How can I increase my downloads?

References found in this work

Prospect Theory: An Analysis of Decision Under Risk.D. Kahneman & A. Tversky - 1979 - Econometrica: Journal of the Econometric Society:263--291.
Risk, ambiguity, and the Savage axioms.Daniel Ellsberg - 1961 - Quarterly Journal of Economics:643–69.
Risk aversion and incentive effects.Charles Holt & Susan Laury - 2002 - American Economic Review 92 (5):1644–55.

View all 6 references / Add more references