NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Ambiguity Aversion and Household Portfolio Choice: Empirical Evidence

Stephen G. Dimmock, Roy Kouwenberg, Olivia S. Mitchell, Kim Peijnenburg

NBER Working Paper No. 18743
Issued in January 2013
NBER Program(s):   AG   LS

This paper tests the effects of ambiguity aversion on household portfolio choice. We measure ambiguity aversion with custom-designed questions based on Ellsberg urns, using a large representative survey of U.S. households. As theory predicts, ambiguity aversion is negatively associated with stock market participation and with the fraction of wealth allocated to stocks. Moreover, the effect is large: the participation rate is 3.9 percentage points lower among ambiguity averse respondents, compared to ambiguity neutral/seeking respondents. We also find that, conditional on prior stock ownership, ambiguity averse respondents were more likely to sell stocks during the financial crisis.

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This paper was revised on December 9, 2013

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