How much ambiguity aversion? Finding indifferences between Ellsberg's risky and ambiguous bets

Ken Binmore, Lisa Stewart, Alex Voorhoeve*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

    54 Citations (Scopus)

    Abstract

    Experimental results on the Ellsberg paradox typically reveal behavior that is commonly interpreted as ambiguity aversion. The experiments reported in the current paper find the objective probabilities for drawing a red ball that make subjects indifferent between various risky and uncertain Ellsberg bets. They allow us to examine the predictive power of alternative principles of choice under uncertainty, including the objective maximin and Hurwicz criteria, the sure-thing principle, and the principle of insufficient reason. Contrary to our expectations, the principle of insufficient reason performed substantially better than rival theories in our experiment, with ambiguity aversion appearing only as a secondary phenomenon.

    Original languageEnglish
    Pages (from-to)215-238
    Number of pages24
    JournalJournal of Risk and Uncertainty
    Volume45
    Issue number3
    DOIs
    Publication statusPublished - Dec 2012

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