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An Experimental Test of a Search Model under Knightian Uncertainty

Author

Listed:
  • Takao Asano

    (Okayama University)

  • Hiroko Okudaira

    (Okayama University)

  • Masaru Sasaki

    (Osaka University)

Abstract

This paper's objective is to design a laboratory experiment to explore the effect of Knightian uncertainty on a subject's search behavior in a finite sequential search model. Our finding is that the average search duration is shorter when there is Knightian uncertainty in the sense that the true point distribution is unknown to subjects, compared to when the point distribution is known. We also find direct evidence that subjects reduce their own reservation point when there is ambiguity about the point distribution. These results support the implication of Nishimura and Ozaki (2004). Moreover, ambiguity notably affects the search behavior of risk averse subjects, but not of either risk neutral or risk prone subjects.

Suggested Citation

  • Takao Asano & Hiroko Okudaira & Masaru Sasaki, 2011. "An Experimental Test of a Search Model under Knightian Uncertainty," Discussion Papers in Economics and Business 11-05, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:1105
    as

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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1105.pdf
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    References listed on IDEAS

    as
    1. Chen, Yan & Katuscak, Peter & Ozdenoren, Emre, 2007. "Sealed bid auctions with ambiguity: Theory and experiments," Journal of Economic Theory, Elsevier, vol. 136(1), pages 513-535, September.
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    Cited by:

    1. Takanori Adachi & Takao Asano, 2011. "Entrepreneurial Choice and Knightian Uncertainty with Borrowing Constraints," KIER Working Papers 803, Kyoto University, Institute of Economic Research.
    2. Paul Viefers, 2012. "Should I Stay or Should I Go?: A Laboratory Analysis of Investment Opportunities under Ambiguity," Discussion Papers of DIW Berlin 1228, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    experiment; search model; ambiguity; risk attitude; optimal stopping rule;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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