Loïc Berger | IESEG School of Management (original) (raw)

Papers by Loïc Berger

RePEc: Research Papers in Economics, 2019

We investigate the ambiguity preferences of a unique sample of real-life policymakers at the Pari... more We investigate the ambiguity preferences of a unique sample of real-life policymakers at the Paris UN climate conference (COP21). We find that policymakers are generally ambiguity averse. Using a simple design, we are moreover able to show that these preferences are not necessarily due to an irrational behavior, but rather to intrinsic preferences over unknown probabilities. Exploring the heterogeneity within our sample, we also show that the country of origin and the degree of quantitative sophistication affect policymakers' attitudes towards compound risk, but not towards ambiguity. Robustness results are obtained in a lab experiment with a sample of university students.

Journal of Health Economics, May 1, 2013

Many health risks are ambiguous in the sense that reliable and credible information about these r... more Many health risks are ambiguous in the sense that reliable and credible information about these risks is unavailable. In health economics, ambiguity is usually handled through sensitivity analysis, which implicitly assumes that people are neutral towards ambiguity. However, empirical evidence suggests that people are averse to ambiguity and react strongly to it. This paper studies the effects of ambiguity aversion on two classical medical decision problems. If there is ambiguity regarding the diagnosis of a patient, ambiguity aversion increases the decision maker's propensity to opt for treatment. On the other hand, in the case of ambiguity regarding the effects of treatment, ambiguity aversion leads to a reduction in the propensity to choose treatment.

RePEc: Research Papers in Economics, 2019

We report on a laboratory experiment measuring the preferences of a unique pool of risk professio... more We report on a laboratory experiment measuring the preferences of a unique pool of risk professionals over various sources of uncertainty that entail di↵erent degrees of complexity. We then compare these preferences with those of a control group composed of social science students to obtain a deeper understanding of the mechanisms driving behaviors under risk and ambiguity. We find that (1) ambiguity aversion is robust to subjects' degree of sophistication in probabilistic reasoning and background. (2) An association exists between attitudes toward ambiguity and compound risk for students/less sophisticated subjects, and is mainly explained by their attitudes toward complexity. Such an association does not exist for risk professionals/more sophisticated subjects. (3) The failure to reduce compound risk emerges as a su cient, but not a necessary, condition for ambiguity non-neutrality. These findings suggest that decision making under ambiguity cannot be reduced to decision making under risk.

Social Science Research Network, 2020

Policymaking during a pandemic can be extremely challenging. As COVID-19 is a new disease and its... more Policymaking during a pandemic can be extremely challenging. As COVID-19 is a new disease and its global impacts are unprecedented, decisions are taken in a highly uncertain, complex, and rapidly changing environment. In such a context, in which human lives and the economy are at stake, we argue that using ideas and constructs from modern decision theory, even informally, will make policymaking a more responsible and transparent process.

HAL (Le Centre pour la Communication Scientifique Directe), Apr 17, 2023

The experimental study of decision-making under uncertainty typically builds on Ellsberg's (1961)... more The experimental study of decision-making under uncertainty typically builds on Ellsberg's (1961) setting. Yet, as the total number of balls is known in standard Ellsberg's urns, an implicit constraint is put on the specification of the probability models to consider. In practice, this restricts the ability of Ellsberg's urns to characterize situations going beyond those of model ambiguity. In this note, I present a simple and easy-to-implement device that creates the initial conditions of uncertainty, which constitute a critical prerequisite for the study of model misspecification.

Economics and Philosophy, May 19, 2021

This paper reflects on the notion of partial ambiguity. Using a framework decomposing ambiguity i... more This paper reflects on the notion of partial ambiguity. Using a framework decomposing ambiguity into distinct layers of analysis, among which are risk and model uncertainty, and allowing for different attitudes toward these layers, I show that partial ambiguity may prove less desirable than full ambiguity, even under ambiguity aversion. This observation poses difficulties for interpreting the notion of partial ambiguity in relation to the partial information available to determine the potential compositions of an ambiguous urn. Two Ellsberg-style thought experiments are described to challenge the meaning of partial ambiguity further, and an alternative interpretation, based on a more ambiguous relation, is discussed.

Journal of Economic Surveys, Jun 13, 2020

Equity (or, its counterpart, inequity) plays a fundamental role in the evaluation of social welfa... more Equity (or, its counterpart, inequity) plays a fundamental role in the evaluation of social welfare in different dimensions. In this paper, we revisit the concept of inequity-in the sense of unequal distributions-across individuals, time, and states of the world using a unified framework that generalizes the standard expected discounted utilitarianism approach. We propose a general measure of welfare as equity equivalents and a corresponding inequity index. We show that allowing for different attitudes toward inequity across different dimensions covers a scope of possible inequity preferences with different interpretations. We then prove that the order of aggregation across the different dimensions matters for welfare evaluations. Finally, we show that many of the welfare-theoretical approaches recently developed in the literature can be interpreted as special cases of this general framework.

Management Science, Mar 1, 2021

Diversification is a basic economic principle that helps to hedge against uncertainty. It is ther... more Diversification is a basic economic principle that helps to hedge against uncertainty. It is therefore intuitive that both risk aversion and ambiguity aversion should positively affect the value of diversification. In this paper, we show that this intuition (1) is true for risk aversion but (2) is not necessarily true for ambiguity aversion. We derive sufficient conditions, showing that, contrary to the economic intuition, ambiguity and ambiguity aversion may actually reduce the diversification value.

Theory and Decision, Aug 1, 2015

Most decisions concerning (self-)insurance and self-protection have to be taken in situations in ... more Most decisions concerning (self-)insurance and self-protection have to be taken in situations in which (a) the effort exerted precedes the moment uncertainty realizes, and (b) the probabilities of future states of the world are not perfectly known. By integrating these two characteristics in a simple theoretical framework, this paper derives plausible conditions under which ambiguity aversion raises the demand for (self-)insurance and self-protection. In particular, it is shown that in most usual situations where the level of ambiguity does not increase with the level of effort, a simple condition of ambiguity prudence known as decreasing absolute ambiguity aversion (DAAA) is sufficient to give a clear and positive answer to the question: Does ambiguity aversion raise the optimal level of effort?

Economics Letters, May 1, 2014

This letter develops a set of simple conditions under which an individual is willing to save an e... more This letter develops a set of simple conditions under which an individual is willing to save an extra amount of money due to the presence of ambiguity on its second period wealth. This extra precautionary saving motive is naturally associated to the notion of ambiguity prudence.

Environmental and Resource Economics, Sep 19, 2020

We review recent models of choices under uncertainty that have been proposed in the economic lite... more We review recent models of choices under uncertainty that have been proposed in the economic literature. In particular, we show how different concepts and methods of economic decision theory can be directly useful for problems in environmental economics. The framework we propose is general and can be applied in many different fields of environmental economics. To illustrate, we provide a simple application in the context of an optimal mitigation policy under climate change.

Proceedings of the National Academy of Sciences of the United States of America, Jan 20, 2021

The iodine-emitting macroalgae beds can be seen along the coast during low tide. Yee Jun Tham et ... more The iodine-emitting macroalgae beds can be seen along the coast during low tide. Yee Jun Tham et al. report direct atmospheric observations of gaseous iodine interhalogen species and found that their production via the heterogeneous reaction of hypoiodous acid on marine aerosols was unexpectedly fast. The results imply that atmospheric recycling of iodine via photolysis of these interhalogens is more efficient than previously thought, leading to faster-than-expected iodinecatalyzed ozone loss. See the article by Tham et al. on pages e2009951118.

Journal of Economic Behavior and Organization, Dec 1, 2020

We report the results of an experiment eliciting individuals' attitudes toward risk and model unc... more We report the results of an experiment eliciting individuals' attitudes toward risk and model uncertainty. Using a joint elicitation procedure, we then precisely quantify the strength of individuals' attitude toward ambiguity in the context of the smooth model and characterize its main properties. Our results provide empirical evidence of decreasing absolute ambiguity aversion (DAAA) and constant relative ambiguity aversion (CRAA). These results shed new light on the way ambiguity attitudes may affect important decisions, such as the choice of health insurance policies or the optimal investment strategy in the face of climate change.

Nature Climate Change, Feb 6, 2017

Policymakers involved in climate change negotiations are key users of climate science. It is ther... more Policymakers involved in climate change negotiations are key users of climate science. It is therefore vital to understand how to communicate scientific information most effectively to this group. We tested how a unique sample of policymakers and negotiators at the Paris COP21 conference update their beliefs on year 2100 global mean temperature increases in response to a statistical summary of climate models' forecasts. We randomized the way information was provided across participants using three different formats similar to those used in Intergovernmental Panel on Climate Change (IPCC) reports. In spite of having received all available relevant scientific information, policymakers adopted such information very conservatively, assigning it less weight than their own prior beliefs. However, providing individual model estimates in addition to the statistical range was more effective in mitigating such inertia. The experiment was repeated with a population of European MBA students who, despite starting from similar priors, reported conditional probabilities closer to the provided models' forecasts than policymakers. There was also no effect of presentation format in the MBA sample. These results highlight the importance of testing visualization tools directly on the population of interest. Climate change policy whether at a local, national or international scale requires dealing with the presence of uncertainty on many dimensions 3. These uncertainties may be grouped into two broad categories: (a) those associated with socioeconomic , demographic, geo-political, and technological drivers, and (b) those associated with the science of climate itself and, in particular, the response of the climate system to increases in CO2 concentration in the atmosphere. Scientists and advisory bodies like the IPCC handle and report these uncertainties in different ways. Uncertainties about both categories are typically dealt with by means of multimodel ensembles, either of integrated assessment models 4 or of climate models 5. These comparison exercises generate distributions of variables of interest, which incorporate model and parametric uncertainty. They are routinely represented and summarized in reports like the ones produced by the IPCC (see Figure S4 for examples of formats used to represent these uncertainties). Studies that examine people's response to, and use of, probabilistic information suggest that individuals may treat uncertainty from distinct sources differently 6 , and that the communication format can affect how they Corresponding Author: correspondence and requests for materials should be addressed to Acknowledgments: The research leading to these results received funding from the European Research Council under the European Community's Programme "Ideas"-Call identifier: ERC-2013-StG / ERC grant agreement n° 336703-project RISICO "RISk and uncertainty in developing and Implementing Climate change pOlicies " and from the European Research Council under the European Union's Seventh Framework Programme (FP7/2007-2013) / ERC grant agreement n° 336155-project COBHAM "The role of consumer behaviour and heterogeneity in the integrated assessment of energy and climate policies". We thank all respondents who took the time and effort to undertake the survey both at COP21 in Paris and at the Climate Change Strategy Role Play held through CEMS-The Global Alliance in Management Education.

RePEc: Research Papers in Economics, Jul 10, 2018

We experimentally explore decision-making under uncertainty using a framework that decomposes unc... more We experimentally explore decision-making under uncertainty using a framework that decomposes uncertainty into three distinct layers: (1) physical uncertainty, entailing inherent randomness within a given probability model, (2) model uncertainty, entailing subjective uncertainty about the probability model to be used and (3) model misspecification, entailing uncertainty about the presence of the true probability model among the set of models considered. Using a new experimental design, we measure individual attitudes towards these different layers of uncertainty and study the distinct role of each of them in characterizing ambiguity attitudes. In addition to providing new insights into the underlying processes behind ambiguity aversion-failure to reduce compound probabilities or distinct attitudes towards unknown probabilities-our study provides the first empirical evidence for the intermediate role of model misspecification between model uncertainty and Ellsberg in decision-making under uncertainty.

RePEc: Research Papers in Economics, Mar 22, 2017

Inequity plays a fundamental role in the evaluation of social welfare in many dimensions. We revi... more Inequity plays a fundamental role in the evaluation of social welfare in many dimensions. We revisit the concept of inequity, whether across states of world (uncertainty), across individuals (inequality) and across generations (intergenerational equity), using a common framework generalizing the discounted expected utilitarianism approach. We propose a general measure of welfare as equity equivalents and develop the corresponding inequity index. We then allow for different degrees of inequity aversion across the three dimensions to span a simplex of possible inequity preferences and relate it to the recent literature on this topic. We show that the ordering of aggregation across the different dimensions matters for welfare evaluations and that many welfare-theoretical approaches developed in the literature may be seen as special cases of this general framework.

Nature Climate Change, Apr 1, 2017

Social Science Research Network, Jul 4, 2016

This paper describes the WITCH-World Induced Technical Change Hybrid-model in its structure, cali... more This paper describes the WITCH-World Induced Technical Change Hybrid-model in its structure, calibration, and the implementation of the SSP/RCP scenario implementation. The WITCH model is a regionally disaggregated hard-linked model based on a a Ramsey type optimal growth model and a detailed bottom-up energy sector model. A particular focus of the model is the modeling or technical change and RnD investments and the analysis of cooperative and non-cooperative climate policies. Moreover, the WITCH 2016 version now includes land-use change modeling based on the GLOBIOM model, and air pollutants, as well as detailed modeling of the transport sector and the possibility for stochastic modeling. This version has been also used to implement the Shared Socioeconomic Pathways (SSPs) set of scenarios and RCP based climate policies to provide a new set of climate scenarios. In this paper, we describe in detail the mathematical formulation of the WITCH model, the solution method and calibration, as well as the implementation of the five SSP scenarios. This report therefore provides detailed information for interested users of the model, and for understanding the implementation of the different "worlds" of the SSP.

RePEc: Research Papers in Economics, Jun 22, 2012

In the first chapter of this thesis, I use the smooth ambiguity model developed by Klibanoff, Mar... more In the first chapter of this thesis, I use the smooth ambiguity model developed by Klibanoff, Marinacci, and Mukerji (2005) to define the concepts of ambiguity and uncertainty premia in a way analogous to what Pratt (1964) did in the risk theory literature. I show that these concepts may be useful to quantify the effect ambiguity has on the welfare of economic agents. I also define several other concepts such as the unambiguous probability equivalent or the ambiguous utility premium, provide local approximations of these different premia and show the link that exists between them when comparing different degrees of ambiguity aversion not only in the small, but also in the large. In the second chapter, I analyze the effect of ambiguity on self-insurance and self-protection, that are tools used to deal with the uncertainty of facing a monetary loss when market insurance is not available (in the self-insurance model, the decision maker has the opportunity to furnish an effort to reduce the size of the loss occurring in the bad state of the world, while in the self-protection – or prevention – model, the effort reduces the probability of being in the bad state). In a short note, in the context of a two-period model I first examine the links between risk-aversion, prudence and self-insurance/self-protection activities under risk. Contrary to the results obtained in the static one-period model, I show that the impacts of prudence and of risk-aversion go in the same direction and generate a higher level of prevention in the more usual situations. I also show that the results concerning self-insurance in a single period framework may be easily extended to a two-period context. I then consider two-period self-insurance and self-protection models in the presence of ambiguity and analyze the effect of ambiguity aversion. I show that in most common situations, ambiguity prudence is a sufficient condition to observe an increase in the level of effort. I propose an interpretation of the model in the context of climate change, so that self-insurance and self-protection are respectively seen as adaptation and mitigation efforts a policy-maker should provide to deal with an uncertain catastrophic event, and interpret the results obtained as an expression of the Precautionary Principle. In the third chapter, I introduce the economic theory developed to deal with ambiguity in the context of medical decision-making. I show that, under diagnostic uncertainty, an increase in ambiguity aversion always leads a physician whose goal is to act in the best interest of his patient, to choose a higher level of treatment. In the context of a dichotomic choice (treatment versus no treatment), this result implies that taking into account the attitude agents generally manifest towards ambiguity may induce a physician to change his decision by opting for treatment more often. I further show that under therapeutic uncertainty, the opposite happens, i.e. an ambiguity averse physician may eventually choose not to treat a patient who would have been treated under ambiguity neutrality.

Social Science Research Network, 2015

Most decisions concerning (self-)insurance and self-protection have to be taken in situations in ... more Most decisions concerning (self-)insurance and self-protection have to be taken in situations in which a) the effort exerted precedes the moment uncertainty realises, and b) the probabilities of future states of the world are not perfectly known. By integrating these two characteristics in a simple theoretical framework, this paper derives plausible conditions under which ambiguity aversion raises the demand for (self-)insurance and self-protection. In particular, it is shown that in most usual situations where the level of ambiguity does not increase with the level of effort, a simple condition of ambiguity prudence known as decreasing absolute ambiguity aversion (DAAA) is sufficient to give a clear and positive answer to the question: Does ambiguity aversion raise the optimal level of effort?

RePEc: Research Papers in Economics, 2019

We investigate the ambiguity preferences of a unique sample of real-life policymakers at the Pari... more We investigate the ambiguity preferences of a unique sample of real-life policymakers at the Paris UN climate conference (COP21). We find that policymakers are generally ambiguity averse. Using a simple design, we are moreover able to show that these preferences are not necessarily due to an irrational behavior, but rather to intrinsic preferences over unknown probabilities. Exploring the heterogeneity within our sample, we also show that the country of origin and the degree of quantitative sophistication affect policymakers' attitudes towards compound risk, but not towards ambiguity. Robustness results are obtained in a lab experiment with a sample of university students.

Journal of Health Economics, May 1, 2013

Many health risks are ambiguous in the sense that reliable and credible information about these r... more Many health risks are ambiguous in the sense that reliable and credible information about these risks is unavailable. In health economics, ambiguity is usually handled through sensitivity analysis, which implicitly assumes that people are neutral towards ambiguity. However, empirical evidence suggests that people are averse to ambiguity and react strongly to it. This paper studies the effects of ambiguity aversion on two classical medical decision problems. If there is ambiguity regarding the diagnosis of a patient, ambiguity aversion increases the decision maker's propensity to opt for treatment. On the other hand, in the case of ambiguity regarding the effects of treatment, ambiguity aversion leads to a reduction in the propensity to choose treatment.

RePEc: Research Papers in Economics, 2019

We report on a laboratory experiment measuring the preferences of a unique pool of risk professio... more We report on a laboratory experiment measuring the preferences of a unique pool of risk professionals over various sources of uncertainty that entail di↵erent degrees of complexity. We then compare these preferences with those of a control group composed of social science students to obtain a deeper understanding of the mechanisms driving behaviors under risk and ambiguity. We find that (1) ambiguity aversion is robust to subjects' degree of sophistication in probabilistic reasoning and background. (2) An association exists between attitudes toward ambiguity and compound risk for students/less sophisticated subjects, and is mainly explained by their attitudes toward complexity. Such an association does not exist for risk professionals/more sophisticated subjects. (3) The failure to reduce compound risk emerges as a su cient, but not a necessary, condition for ambiguity non-neutrality. These findings suggest that decision making under ambiguity cannot be reduced to decision making under risk.

Social Science Research Network, 2020

Policymaking during a pandemic can be extremely challenging. As COVID-19 is a new disease and its... more Policymaking during a pandemic can be extremely challenging. As COVID-19 is a new disease and its global impacts are unprecedented, decisions are taken in a highly uncertain, complex, and rapidly changing environment. In such a context, in which human lives and the economy are at stake, we argue that using ideas and constructs from modern decision theory, even informally, will make policymaking a more responsible and transparent process.

HAL (Le Centre pour la Communication Scientifique Directe), Apr 17, 2023

The experimental study of decision-making under uncertainty typically builds on Ellsberg's (1961)... more The experimental study of decision-making under uncertainty typically builds on Ellsberg's (1961) setting. Yet, as the total number of balls is known in standard Ellsberg's urns, an implicit constraint is put on the specification of the probability models to consider. In practice, this restricts the ability of Ellsberg's urns to characterize situations going beyond those of model ambiguity. In this note, I present a simple and easy-to-implement device that creates the initial conditions of uncertainty, which constitute a critical prerequisite for the study of model misspecification.

Economics and Philosophy, May 19, 2021

This paper reflects on the notion of partial ambiguity. Using a framework decomposing ambiguity i... more This paper reflects on the notion of partial ambiguity. Using a framework decomposing ambiguity into distinct layers of analysis, among which are risk and model uncertainty, and allowing for different attitudes toward these layers, I show that partial ambiguity may prove less desirable than full ambiguity, even under ambiguity aversion. This observation poses difficulties for interpreting the notion of partial ambiguity in relation to the partial information available to determine the potential compositions of an ambiguous urn. Two Ellsberg-style thought experiments are described to challenge the meaning of partial ambiguity further, and an alternative interpretation, based on a more ambiguous relation, is discussed.

Journal of Economic Surveys, Jun 13, 2020

Equity (or, its counterpart, inequity) plays a fundamental role in the evaluation of social welfa... more Equity (or, its counterpart, inequity) plays a fundamental role in the evaluation of social welfare in different dimensions. In this paper, we revisit the concept of inequity-in the sense of unequal distributions-across individuals, time, and states of the world using a unified framework that generalizes the standard expected discounted utilitarianism approach. We propose a general measure of welfare as equity equivalents and a corresponding inequity index. We show that allowing for different attitudes toward inequity across different dimensions covers a scope of possible inequity preferences with different interpretations. We then prove that the order of aggregation across the different dimensions matters for welfare evaluations. Finally, we show that many of the welfare-theoretical approaches recently developed in the literature can be interpreted as special cases of this general framework.

Management Science, Mar 1, 2021

Diversification is a basic economic principle that helps to hedge against uncertainty. It is ther... more Diversification is a basic economic principle that helps to hedge against uncertainty. It is therefore intuitive that both risk aversion and ambiguity aversion should positively affect the value of diversification. In this paper, we show that this intuition (1) is true for risk aversion but (2) is not necessarily true for ambiguity aversion. We derive sufficient conditions, showing that, contrary to the economic intuition, ambiguity and ambiguity aversion may actually reduce the diversification value.

Theory and Decision, Aug 1, 2015

Most decisions concerning (self-)insurance and self-protection have to be taken in situations in ... more Most decisions concerning (self-)insurance and self-protection have to be taken in situations in which (a) the effort exerted precedes the moment uncertainty realizes, and (b) the probabilities of future states of the world are not perfectly known. By integrating these two characteristics in a simple theoretical framework, this paper derives plausible conditions under which ambiguity aversion raises the demand for (self-)insurance and self-protection. In particular, it is shown that in most usual situations where the level of ambiguity does not increase with the level of effort, a simple condition of ambiguity prudence known as decreasing absolute ambiguity aversion (DAAA) is sufficient to give a clear and positive answer to the question: Does ambiguity aversion raise the optimal level of effort?

Economics Letters, May 1, 2014

This letter develops a set of simple conditions under which an individual is willing to save an e... more This letter develops a set of simple conditions under which an individual is willing to save an extra amount of money due to the presence of ambiguity on its second period wealth. This extra precautionary saving motive is naturally associated to the notion of ambiguity prudence.

Environmental and Resource Economics, Sep 19, 2020

We review recent models of choices under uncertainty that have been proposed in the economic lite... more We review recent models of choices under uncertainty that have been proposed in the economic literature. In particular, we show how different concepts and methods of economic decision theory can be directly useful for problems in environmental economics. The framework we propose is general and can be applied in many different fields of environmental economics. To illustrate, we provide a simple application in the context of an optimal mitigation policy under climate change.

Proceedings of the National Academy of Sciences of the United States of America, Jan 20, 2021

The iodine-emitting macroalgae beds can be seen along the coast during low tide. Yee Jun Tham et ... more The iodine-emitting macroalgae beds can be seen along the coast during low tide. Yee Jun Tham et al. report direct atmospheric observations of gaseous iodine interhalogen species and found that their production via the heterogeneous reaction of hypoiodous acid on marine aerosols was unexpectedly fast. The results imply that atmospheric recycling of iodine via photolysis of these interhalogens is more efficient than previously thought, leading to faster-than-expected iodinecatalyzed ozone loss. See the article by Tham et al. on pages e2009951118.

Journal of Economic Behavior and Organization, Dec 1, 2020

We report the results of an experiment eliciting individuals' attitudes toward risk and model unc... more We report the results of an experiment eliciting individuals' attitudes toward risk and model uncertainty. Using a joint elicitation procedure, we then precisely quantify the strength of individuals' attitude toward ambiguity in the context of the smooth model and characterize its main properties. Our results provide empirical evidence of decreasing absolute ambiguity aversion (DAAA) and constant relative ambiguity aversion (CRAA). These results shed new light on the way ambiguity attitudes may affect important decisions, such as the choice of health insurance policies or the optimal investment strategy in the face of climate change.

Nature Climate Change, Feb 6, 2017

Policymakers involved in climate change negotiations are key users of climate science. It is ther... more Policymakers involved in climate change negotiations are key users of climate science. It is therefore vital to understand how to communicate scientific information most effectively to this group. We tested how a unique sample of policymakers and negotiators at the Paris COP21 conference update their beliefs on year 2100 global mean temperature increases in response to a statistical summary of climate models' forecasts. We randomized the way information was provided across participants using three different formats similar to those used in Intergovernmental Panel on Climate Change (IPCC) reports. In spite of having received all available relevant scientific information, policymakers adopted such information very conservatively, assigning it less weight than their own prior beliefs. However, providing individual model estimates in addition to the statistical range was more effective in mitigating such inertia. The experiment was repeated with a population of European MBA students who, despite starting from similar priors, reported conditional probabilities closer to the provided models' forecasts than policymakers. There was also no effect of presentation format in the MBA sample. These results highlight the importance of testing visualization tools directly on the population of interest. Climate change policy whether at a local, national or international scale requires dealing with the presence of uncertainty on many dimensions 3. These uncertainties may be grouped into two broad categories: (a) those associated with socioeconomic , demographic, geo-political, and technological drivers, and (b) those associated with the science of climate itself and, in particular, the response of the climate system to increases in CO2 concentration in the atmosphere. Scientists and advisory bodies like the IPCC handle and report these uncertainties in different ways. Uncertainties about both categories are typically dealt with by means of multimodel ensembles, either of integrated assessment models 4 or of climate models 5. These comparison exercises generate distributions of variables of interest, which incorporate model and parametric uncertainty. They are routinely represented and summarized in reports like the ones produced by the IPCC (see Figure S4 for examples of formats used to represent these uncertainties). Studies that examine people's response to, and use of, probabilistic information suggest that individuals may treat uncertainty from distinct sources differently 6 , and that the communication format can affect how they Corresponding Author: correspondence and requests for materials should be addressed to Acknowledgments: The research leading to these results received funding from the European Research Council under the European Community's Programme "Ideas"-Call identifier: ERC-2013-StG / ERC grant agreement n° 336703-project RISICO "RISk and uncertainty in developing and Implementing Climate change pOlicies " and from the European Research Council under the European Union's Seventh Framework Programme (FP7/2007-2013) / ERC grant agreement n° 336155-project COBHAM "The role of consumer behaviour and heterogeneity in the integrated assessment of energy and climate policies". We thank all respondents who took the time and effort to undertake the survey both at COP21 in Paris and at the Climate Change Strategy Role Play held through CEMS-The Global Alliance in Management Education.

RePEc: Research Papers in Economics, Jul 10, 2018

We experimentally explore decision-making under uncertainty using a framework that decomposes unc... more We experimentally explore decision-making under uncertainty using a framework that decomposes uncertainty into three distinct layers: (1) physical uncertainty, entailing inherent randomness within a given probability model, (2) model uncertainty, entailing subjective uncertainty about the probability model to be used and (3) model misspecification, entailing uncertainty about the presence of the true probability model among the set of models considered. Using a new experimental design, we measure individual attitudes towards these different layers of uncertainty and study the distinct role of each of them in characterizing ambiguity attitudes. In addition to providing new insights into the underlying processes behind ambiguity aversion-failure to reduce compound probabilities or distinct attitudes towards unknown probabilities-our study provides the first empirical evidence for the intermediate role of model misspecification between model uncertainty and Ellsberg in decision-making under uncertainty.

RePEc: Research Papers in Economics, Mar 22, 2017

Inequity plays a fundamental role in the evaluation of social welfare in many dimensions. We revi... more Inequity plays a fundamental role in the evaluation of social welfare in many dimensions. We revisit the concept of inequity, whether across states of world (uncertainty), across individuals (inequality) and across generations (intergenerational equity), using a common framework generalizing the discounted expected utilitarianism approach. We propose a general measure of welfare as equity equivalents and develop the corresponding inequity index. We then allow for different degrees of inequity aversion across the three dimensions to span a simplex of possible inequity preferences and relate it to the recent literature on this topic. We show that the ordering of aggregation across the different dimensions matters for welfare evaluations and that many welfare-theoretical approaches developed in the literature may be seen as special cases of this general framework.

Nature Climate Change, Apr 1, 2017

Social Science Research Network, Jul 4, 2016

This paper describes the WITCH-World Induced Technical Change Hybrid-model in its structure, cali... more This paper describes the WITCH-World Induced Technical Change Hybrid-model in its structure, calibration, and the implementation of the SSP/RCP scenario implementation. The WITCH model is a regionally disaggregated hard-linked model based on a a Ramsey type optimal growth model and a detailed bottom-up energy sector model. A particular focus of the model is the modeling or technical change and RnD investments and the analysis of cooperative and non-cooperative climate policies. Moreover, the WITCH 2016 version now includes land-use change modeling based on the GLOBIOM model, and air pollutants, as well as detailed modeling of the transport sector and the possibility for stochastic modeling. This version has been also used to implement the Shared Socioeconomic Pathways (SSPs) set of scenarios and RCP based climate policies to provide a new set of climate scenarios. In this paper, we describe in detail the mathematical formulation of the WITCH model, the solution method and calibration, as well as the implementation of the five SSP scenarios. This report therefore provides detailed information for interested users of the model, and for understanding the implementation of the different "worlds" of the SSP.

RePEc: Research Papers in Economics, Jun 22, 2012

In the first chapter of this thesis, I use the smooth ambiguity model developed by Klibanoff, Mar... more In the first chapter of this thesis, I use the smooth ambiguity model developed by Klibanoff, Marinacci, and Mukerji (2005) to define the concepts of ambiguity and uncertainty premia in a way analogous to what Pratt (1964) did in the risk theory literature. I show that these concepts may be useful to quantify the effect ambiguity has on the welfare of economic agents. I also define several other concepts such as the unambiguous probability equivalent or the ambiguous utility premium, provide local approximations of these different premia and show the link that exists between them when comparing different degrees of ambiguity aversion not only in the small, but also in the large. In the second chapter, I analyze the effect of ambiguity on self-insurance and self-protection, that are tools used to deal with the uncertainty of facing a monetary loss when market insurance is not available (in the self-insurance model, the decision maker has the opportunity to furnish an effort to reduce the size of the loss occurring in the bad state of the world, while in the self-protection – or prevention – model, the effort reduces the probability of being in the bad state). In a short note, in the context of a two-period model I first examine the links between risk-aversion, prudence and self-insurance/self-protection activities under risk. Contrary to the results obtained in the static one-period model, I show that the impacts of prudence and of risk-aversion go in the same direction and generate a higher level of prevention in the more usual situations. I also show that the results concerning self-insurance in a single period framework may be easily extended to a two-period context. I then consider two-period self-insurance and self-protection models in the presence of ambiguity and analyze the effect of ambiguity aversion. I show that in most common situations, ambiguity prudence is a sufficient condition to observe an increase in the level of effort. I propose an interpretation of the model in the context of climate change, so that self-insurance and self-protection are respectively seen as adaptation and mitigation efforts a policy-maker should provide to deal with an uncertain catastrophic event, and interpret the results obtained as an expression of the Precautionary Principle. In the third chapter, I introduce the economic theory developed to deal with ambiguity in the context of medical decision-making. I show that, under diagnostic uncertainty, an increase in ambiguity aversion always leads a physician whose goal is to act in the best interest of his patient, to choose a higher level of treatment. In the context of a dichotomic choice (treatment versus no treatment), this result implies that taking into account the attitude agents generally manifest towards ambiguity may induce a physician to change his decision by opting for treatment more often. I further show that under therapeutic uncertainty, the opposite happens, i.e. an ambiguity averse physician may eventually choose not to treat a patient who would have been treated under ambiguity neutrality.

Social Science Research Network, 2015

Most decisions concerning (self-)insurance and self-protection have to be taken in situations in ... more Most decisions concerning (self-)insurance and self-protection have to be taken in situations in which a) the effort exerted precedes the moment uncertainty realises, and b) the probabilities of future states of the world are not perfectly known. By integrating these two characteristics in a simple theoretical framework, this paper derives plausible conditions under which ambiguity aversion raises the demand for (self-)insurance and self-protection. In particular, it is shown that in most usual situations where the level of ambiguity does not increase with the level of effort, a simple condition of ambiguity prudence known as decreasing absolute ambiguity aversion (DAAA) is sufficient to give a clear and positive answer to the question: Does ambiguity aversion raise the optimal level of effort?