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Risk, Ambiguity, And Diversification

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  • Santiago I. Sautua

Abstract

Attitudes toward risk inuence the decision to diversify among uncertain options. Yet, because in most situations the options are ambiguous, attitudes toward ambiguity may also play an important role. I conduct a laboratory experiment to investigate the effect of ambiguity on the decision to diversify. I fi nd that diversi cation is more prevalent and more persistent under ambiguity than under risk. Moreover, excess diversi cation under ambiguity is driven by participants who stick with a status quo gamble when diversi cation among gambles is not feasible. This behavioral pattern cannot be accommodated by major theories of choice under ambiguity

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  • Santiago I. Sautua, 2016. "Risk, Ambiguity, And Diversification," Documentos de Trabajo 14588, Universidad del Rosario.
    • Handle: RePEc:col:000092:014588
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    Cited by:

    1. Sautua, Santiago I., 2017. "Does uncertainty cause inertia in decision making? An experimental study of the role of regret aversion and indecisiveness," Journal of Economic Behavior & Organization, Elsevier, vol. 136(C), pages 1-14.

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    More about this item

    Keywords

    risk; ambiguity; inertia; diversi cation; reference-dependent preferences; indecisiveness; ambiguity aversion;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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