Estimating Ambiguity Aversion in a Portfolio Choice Experiment

By Shachar Kariv, Syngjoo Choi, Douglas Gale, David S. Ahn. 2009

356 citations recorded by the source corpus.

We report a laboratory experiment that enables us to estimate parametric models of ambiguity aversion at the level of the individual subject. We use two main specifications, a “kinked” specification that nests Maxmin Expected Utility, Choquet Expected Utility, α-Maxmin Expected Utility, and Contraction Expected Utility and a “smooth” specification that nests the various theories referred to collectively as Recursive Expected Utility. Our subjects solved a series of portfolio-choice problems. The assets are Arrow securities corresponding to three states of nature, where the probability of one state is known and the remaining two are ambiguous. The sample exhibits considerable heterogeneity in preferences, as captured by parameter estimates. Nonetheless, there exists a strong tendency to equalize the demands for the securities that pay off in the ambiguous states, a feature more easily accommodated by the kinked specification than by the smooth specification. We also find that a large number of subjects are well described by the ambiguity-neutral Subjective Expected Utility model.

Subfields: Economics and Econometrics, General Decision Sciences

View Paper: https://www.semanticscholar.org/paper/6f2653535b594ceab5b08e6d168440bd5d18c329

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Citations in the corpus

The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation (2011, methodology): “(2008) and Andersen et al. (2009b). Ahn et al.”
Who Is (More) Rational (2014, methodology): “[1] We begin our analysis with a purely descriptive overview of some important features of the data, concerning the average quality of decisions.”