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How much ambiguity aversion?

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  • Ken Binmore
  • Lisa Stewart
  • Alex Voorhoeve

Abstract

Experimental results on the Ellsberg paradox typically reveal behavior that is commonly interpreted as ambiguity aversion. The experiments reported in the current paper find the objective probabilities for drawing a red ball that make subjects indifferent between various risky and uncertain Ellsberg bets. They allow us to examine the predictive power of alternative principles of choice under uncertainty, including the objective maximin and Hurwicz criteria, the sure-thing principle, and the principle of insufficient reason. Contrary to our expectations, the principle of insufficient reason performed substantially better than rival theories in our experiment, with ambiguity aversion appearing only as a secondary phenomenon. Copyright Springer Science+Business Media New York 2012

Suggested Citation

  • Ken Binmore & Lisa Stewart & Alex Voorhoeve, 2012. "How much ambiguity aversion?," Journal of Risk and Uncertainty, Springer, vol. 45(3), pages 215-238, December.
    • Handle: RePEc:kap:jrisku:v:45:y:2012:i:3:p:215-238
    DOI: 10.1007/s11166-012-9155-3
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    More about this item

    Keywords

    Ambiguity aversion; Ellsberg paradox; Hurwicz criterion; Maximin criterion; Principle of insufficient reason; C91; D03;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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