The strength of sensitivity to ambiguity

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

Abstract

We report an experiment where each subject’s ambiguity sensitivity is measured by an ambiguity premium, a concept analogous to and comparable with a risk premium. In our design, some tasks feature known objective risks and others uncertainty about which subjects have imperfect, heterogeneous, information (“ambiguous tasks”). We show how the smooth ambiguity model can be used to calculate ambiguity premia. A distinctive feature of our approach is estimation of each subject’s subjective beliefs about the uncertainty in ambiguous tasks. We find considerable heterogeneity among subjects in beliefs and ambiguity premia; and that, on average, ambiguity sensitivity is about as strong as risk sensitivity.

Citation

Cubitt, R., van de Kuilen, G., & Mukerji, S. (2018). The strength of sensitivity to ambiguity. Theory and Decision, 85(3-4), 275-302. https://doi.org/10.1007/s11238-018-9657-9

• Journal Article Type: Article
• Acceptance Date: Feb 15, 2018
• Online Publication Date: Mar 19, 2018
• Publication Date: Oct 1, 2018
• Deposit Date: Mar 26, 2018
• Publicly Available Date: Mar 26, 2018
• Journal: Theory and Decision
• Print ISSN: 0040-5833
• Electronic ISSN: 1573-7187
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 85
• Issue: 3-4
• Pages: 275-302
• DOI: https://doi.org/10.1007/s11238-018-9657-9
• Keywords: Ambiguity sensitivity, Ambiguity attitude, Measuring strength of ambiguity sensitivity, Smooth ambiguity model, Ambiguity premium
• Public URL: https://nottingham-repository.worktribe.com/output/920847
• Publisher URL: https://link.springer.com/article/10.1007/s11238-018-9657-9
• Contract Date: Mar 26, 2018