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Market-Based Solutions to Vital Economic Issues
Research
Sep 20, 2017

You Need to Recognize Ambiguity to Avoid It

Abstract

After screening for attentiveness and comprehension, we present subjects with Ellsberg’s (1961) two‐urn problem using essentially equivalent but representationally complex matrices. High‐comprehension subjects exhibit rates of ambiguity aversion typical of the standard two‐urn problem, while low‐comprehension subjects appear to randomise. In screening, we classify subjects as ‘probability‐minded’ or ‘ambiguity‐minded’, depending on whether they assign probabilities to draws from a card deck of unknown composition. Among high‐comprehension subjects, ‘mindedness’ explains twenty times more variation in ambiguity attitudes than all other demographic characteristics combined. Compared with their ‘probability‐minded’ counterparts, ‘ambiguity‐minded’ subjects are younger and more educated, analytic, and reflective about their choices.


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