Discriminating between models of ambiguity attitude: a qualitative test

Cubitt, Robin; van de Kuilen, Gijs; Mukerji, Sujoy

Abstract

During recent decades, many new models have emerged in pure and applied economic theory according to which agents’ choices may be sensitive to ambiguity in the uncertainty that faces them. The exchange between Epstein (2010) and Klibanoff et al. (2012) identified a notable behavioral issue that distinguishes sharply between two classes of models of ambiguity sensitivity that are importantly different. The two classes are exemplified by the 𝛼-MEU model and the smooth ambiguity model, respectively; and the issue is whether or not a desire to hedge independently resolving ambiguities contributes to an ambiguity averse agent’s preference for a randomized act. Building on this insight, we implement an experiment whose design provides a qualitative test that discriminates between the two classes of models. Among subjects identified as ambiguity sensitive, we find greater support for the class exemplified by the smooth ambiguity model; the relative support is stronger among subjects identified as ambiguity averse. This finding has implications for applications which rely on specific models of ambiguity preference.

Citation

Cubitt, R., van de Kuilen, G., & Mukerji, S. (2020). Discriminating between models of ambiguity attitude: a qualitative test. Journal of the European Economic Association, 18(2), 708–749. https://doi.org/10.1093/jeea/jvz005

• Journal Article Type: Article
• Acceptance Date: Sep 25, 2018
• Online Publication Date: Apr 1, 2019
• Publication Date: 2020-04
• Deposit Date: Feb 28, 2019
• Publicly Available Date: Apr 2, 2021
• Journal: Journal of the European Economic Association
• Print ISSN: 1542-4766
• Electronic ISSN: 1542-4774
• Publisher: Oxford University Press
• Peer Reviewed: Peer Reviewed
• Volume: 18
• Issue: 2
• Pages: 708–749
• DOI: https://doi.org/10.1093/jeea/jvz005
• Keywords: Ambiguity sensitivity; Ambiguity attitude; Testing models of ambiguity sensitive preference
• Public URL: https://nottingham-repository.worktribe.com/output/1592611
• Publisher URL: https://academic.oup.com/jeea/advance-article/doi/10.1093/jeea/jvz005/5424161
• Contract Date: Feb 28, 2019