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Disentangling Drivers of Ambiguity Attitudes

Author

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  • Abdellaoui, Mohammed

    (HEC Paris)

  • Hill, Brian

    (HEC Paris)

  • Akella, Sarat Chandra

    (HEC Paris)

Abstract

A popular framework for ambiguity represents alternatives of choice as twostage gambles reflecting the uncertainty about the true probability on the state space. In this framework, ambiguity-averse behaviour could be driven by differences in utilities between stages-as in the smooth ambiguity model (Klibanoff et al., 2005)-or by non-linear probability weighting-as in a line of research initiated by Segal (1987). The present paper investigates the relevance of these distinct drivers of ambiguity attitudes in a two-stage setup by estimating a generalization of the smooth ambiguity model incorporating probability weighting. Our experiment reveals the relevance of both factors to describing ambiguity attitudes. We also report evidence of stakes-dependence of ambiguity attitudes, as implied by utility-driven approaches.

Suggested Citation

  • Abdellaoui, Mohammed & Hill, Brian & Akella, Sarat Chandra, 2024. "Disentangling Drivers of Ambiguity Attitudes," HEC Research Papers Series 1530, HEC Paris.
    • Handle: RePEc:ebg:heccah:1530
    DOI: 10.2139/ssrn.4916177
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    More about this item

    Keywords

    Ambiguity; ambiguity aversion; probability weighting; rank-dependent utility; recursive expected utility; smooth ambiguity model;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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