Characterizing ambiguity attitudes using model uncertainty

Loïc Berger (1, 2, 3, 4) , Valentina Bosetti (5)

1 IÉSEG School Of Management [Puteaux]
2 EIEE - European Institute on Economics and the Environment
3 CMCC - Centro Euro-Mediterraneo per i Cambiamenti Climatici [Bologna]
4 LEM - Lille économie management - UMR 9221
5 Bocconi University [Milan, Italy]

We report the results of an experiment eliciting individuals' attitudes toward risk and model uncertainty. Using a joint elicitation procedure, we then precisely quantify the strength of individuals' attitude toward ambiguity in the context of the smooth model and characterize its main properties. Our results provide empirical evidence of decreasing absolute ambiguity aversion (DAAA) and constant relative ambiguity aversion (CRAA). These results shed new light on the way ambiguity attitudes may affect important decisions, such as the choice of health insurance policies or the optimal investment strategy in the face of climate change.

Mots clés: Ambiguity aversion; Laboratory experiment; Non-expected utility; Subjective probabilities; Decreasing absolute ambiguity aversion

Domaines: Economies et finances; Psychologie

Loïc Berger, Valentina Bosetti. Characterizing ambiguity attitudes using model uncertainty. Journal of Economic Behavior and Organization, 2020, 180, pp.621-637. ⟨10.1016/j.jebo.2020.02.014⟩. ⟨hal-03031502⟩