Monday, March 4, 2013
Bray Theory Workshop
Chew Soo Hong, Department of Economics, National University of Singapore
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.