Attitudes towards risk and ambiguity across gains and losses. (original) (raw)
We use the multiple price list method and a recursive expected utility theory of smooth ambiguity to elicit attitudes to risky and ambiguous prospects. In particular we wish to investigate if there are differences in agent behaviour under uncertainty over gain amounts vis a vis uncertainty over loss amounts. On an aggregate level, we find that (i) subjects are risk averse over gain and risk seeking over losses, displaying a "reflection effect" as documented in Amos Tversky and Daniel Kahneman (1992) and (ii) they are mildly ambiguity averse over gains and are mildly ambiguity seeking over losses. Further analysis shows that on an individual level, and with respect to both risky and ambiguous prospects, there is limited incidence of reflection effects where subjects are risk/ambiguity averse (seeking) in gains and seeking (averse) in losses, though this incidence is higher for ambiguous prospects. A very high proportion of such cases of reflection exhibit risk (ambiguity) aversion in gains and risk (ambiguity) seeking in losses, with the reverse effect being significantly present in the case of risk but almost absent in case of ambiguity. Finally, our results suggest that reflection across gains and losses is not an individual trait but depends upon whether the form of uncertainty is precise or ambiguous since we rarely find an individual who exhibits reflection in both risky and ambiguous prospects.
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