AI Article Synopsis
- The study measures how sensitive individuals are to ambiguity by calculating an ambiguity premium, similar to the risk premium used in finance.
- The experiment involves tasks with known risks and tasks with uncertainty, where participants have varying levels of information.
- Results show significant differences in how people perceive ambiguity, and overall, the sensitivity to ambiguity is found to be comparable to sensitivity to risk.
Article Abstract
We report an experiment where each subject's ambiguity sensitivity is measured by an ambiguity premium, a concept analogous to and comparable with a risk premium. In our design, some tasks feature known objective risks and others uncertainty about which subjects have imperfect, heterogeneous, information ("ambiguous tasks"). We show how the smooth ambiguity model can be used to calculate ambiguity premia. A distinctive feature of our approach is estimation of each subject's subjective beliefs about the uncertainty in ambiguous tasks. We find considerable heterogeneity among subjects in beliefs and ambiguity premia; and that, on average, ambiguity sensitivity is about as strong as risk sensitivity.
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Source |
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| http://www.ncbi.nlm.nih.gov/pmc/articles/PMC6413669 | PMC |
| http://dx.doi.org/10.1007/s11238-018-9657-9 | DOI Listing |
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