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The Strength of Sensitivity to Ambiguity

Author

Listed:
  • Robin Cubitt

    (University of Nottingham)

  • Gijs van de Kuilen

    (Tilburg University)

  • Sujoy Mukerji

    (Queen Mary University of London)

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.

Suggested Citation

  • Robin Cubitt & Gijs van de Kuilen & Sujoy Mukerji, "undated". "The Strength of Sensitivity to Ambiguity," Working Papers 851, Queen Mary University of London, School of Economics and Finance.
    • Handle: RePEc:qmw:qmwecw:851
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    File URL: https://www.qmul.ac.uk/sef/media/econ/research/workingpapers/2017/items/wp851.pdf
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    Cited by:

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    More about this item

    Keywords

    Ambiguity sensitivity; ambiguity attitude; measuring strength of ambiguity sensitivity; smooth ambiguity model; ambiguity premium;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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