Paper by fellows Aurélien Baillon and Peter Wakker published in Econometrica
The paper ‘Measuring Ambiguity Attitudes for all (natural) events’ by research fellows Aurélien Baillon (Erasmus University Rotterdam) and Peter Wakker (Erasmus University Rotterdam) and alumni Zhenxing Huang (Shanghai University of Finance and Economics, China) and Asli Selim (eBay) has been published in Econometrica.
Abstract
Measurements of ambiguity attitudes have so far focused on artificial events, where (subjective)beliefs can be derived from symmetry of events and can be then controlled for. For natural events as relevant in applications, such a symmetry and corresponding control are usually absent, precluding traditional measurement methods. This paper introduces two indexes of ambiguity attitudes, one for aversion and the other for insensitivity/perception, for which we can control for likelihood beliefs even if these are unknown. Hence, we can now measure ambiguity attitudes for natural events. Our indexes are valid under many ambiguity theories, do not require expected utility for risk, and are easy to elicit in practice. We use our indexes to investigate time pressure under ambiguity. People do not become more ambiguity averse under time pressure but become more insensitive (perceive more ambiguity). These findings are plausible and, hence, support the validity of our indexes.
Article Citation: Baillon, Aurélien, Zhenxing Huang, Asli Selim, & Peter P. Wakker (2018 “Measuring Ambiguity Attitudes for All (Natural) Events,” Econometrica 86, Issue 5 (September, 2018), 1839–1858.