Partial Ambiguity

Soo Hong Chew, Bin Miao, Songfa Zhong

Research output: Contribution to journalArticlepeer-review

Abstract

We extend Ellsberg's two-urn paradox and propose three symmetric forms of partial ambiguity by limiting the possible compositions in a deck of 100 red and black cards in three ways. Interval ambiguity involves a symmetric range of 50 − n to 50 + n red cards. Complementarily, disjoint ambiguity arises from two nonintersecting intervals of 0 to n and 100 − n to 100 red cards. Two-point ambiguity involves n or 100 − n red cards. We investigate experimentally attitudes towards partial ambiguity and the corresponding compound lotteries in which the possible compositions are drawn with equal objective probabilities. This yields three key findings: distinct attitudes towards the three forms of partial ambiguity, significant association across attitudes towards partial ambiguity and compound risk, and source preference between two-point ambiguity and two-point compound risk. Our findings help discriminate among models of ambiguity in the literature.

Original languageEnglish (US)
Pages (from-to)1239-1260
Number of pages22
JournalEconometrica
Volume85
Issue number4
DOIs
StatePublished - Jul 2017

Keywords

  • ambiguity
  • Choquet expected utility
  • Ellsberg paradox
  • experiment
  • maxmin expected utility
  • recursive non-expected utility
  • Risk
  • source preference

ASJC Scopus subject areas

  • Economics and Econometrics

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