Ahn, D. and Choi, S. and Gale, D. and Kariv, S. (2007) Estimating ambiguity aversion in a portfolio choice experiment. (ELSE Working Papers 294). ESRC Centre for Economic Learning and Social Evolution: London, UK.
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Abstract
We report a laboratory experiment that enables us to estimate four prominent models of ambiguity aversion — Subjective Expected Utility (SEU), Maxmin Expected Utility (MEU), Recursive Expected Utility (REU), and α-Maxmin Expected Utility (α-MEU) — at the level of the individual subject. We employ graphical representations of three-dimensional budget sets over bundles of Arrow securities, one of which promises a unit payoff with a known probability and two with unknown (ambiguous) probabilities. The sample exhibits considerable heterogeneity in preferences, as captured through parameter estimates. Nonetheless, there exists a strong tendency to equate the demands for the securities that pay off in the ambiguous states. This feature is more easily accommodated by the α-MEU model than by the REU model.
| Type: | Working / discussion paper |
|---|---|
| Title: | Estimating ambiguity aversion in a portfolio choice experiment |
| Open access status: | An open access version is available from UCL Discovery |
| Publisher version: | http://else.econ.ucl.ac.uk/newweb/papers.php#2007 |
| Language: | English |
| Keywords: | D81, C91 |
| UCL classification: | UCL > School of Arts and Social Sciences > Faculty of Social and Historical Sciences > Economics |
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