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Discriminating between models of ambiguity attitude: a qualitative test

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

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Authors

ROBIN CUBITT robin.cubitt@nottingham.ac.uk
Professor of Economics & Decision Research

Gijs van de Kuilen

Sujoy Mukerji



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.

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

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