#08-11
Estimating Ambuiguity Aversion in a Portfolio Choice Experiment
David Ahn, Syngjoo Choi, Douglas Gale and Shachar Kariv, December 2007
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.
Keywords: uncertainty, ambiguity aversion, Subjective Expected
Utility, Maxmin Expected Utility, α-Maxmin Expected Utility, Recursive
Expected Utility, experiment.
JEL classifications: .D81, C91.
