Partial Ambiguity

40 Pages Posted: 10 Mar 2017

See all articles by Soo Hong Chew

Soo Hong Chew

National University of Singapore; National University of Singapore; HKUST

Bin Miao

Shanghai University of Finance and Economics - School of Economics

Songfa Zhong

National University of Singapore (NUS) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: Feb 20, 2013

Abstract

This paper investigates attitude towards partial ambiguity. In a laboratory setting, we study three symmetric variants of the ambiguous urn in Ellsberg's 2-urn paradox by varying the possible compositions of red and black cards in a 100-card deck. Subjects value betting on a deck with a smaller set of possible compositions more, even when they share the same end points. The valuation of lotteries with only two possible compositions decreases in the degree of spread except for a reversal when it approaches the extreme case of either all red or all black. We further study attitude towards skewed ambiguity and find that subjects tend to switch from being ambiguity averse to ambiguity tolerant as the degree of skewness increases. This paper also discusses the implications of our findings for existing models of decision making under uncertainty including those based on multiple priors, a two-stage approach, and source preference.

Keywords: Risk, Uncertainty, Ambiguity, Ellsberg paradox, Experiment, Choquet expected utility, Maxmin expected utility, Recursive non-expected utility, Source preference.

Suggested Citation

Chew, Soo Hong and Miao, Bin and Zhong, Songfa, Partial Ambiguity (Feb 20, 2013). Available at SSRN: https://ssrn.com/abstract=2930724 or http://dx.doi.org/10.2139/ssrn.2930724

Soo Hong Chew (Contact Author)

National University of Singapore ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HKUST ( email )

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Kowloon, Hong Kong
China

Bin Miao

Shanghai University of Finance and Economics - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

Songfa Zhong

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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