Estimating Individual Ambiguity Aversion: A Simple Approach
We introduce a simple, easy to implement instrument for jointly eliciting risk and ambiguity attitudes. Using this instrument, we structurally estimate a two-parameter model of preferences. Our findings indicate that ambiguity aversion is significantly overstated when risk neutrality is assumed. This highlights the interplay between risk and ambiguity attitudes as well as the importance of joint estimation. In addition, over our stakes levels we find no difference in the estimated parameters when incentives are real or hypothetical, raising the possibility that a simple hypothetical question can provide insights into an individuals preferences over ambiguity in such economic environments.
We thank Michael Kuhn and Pietro Ortoleva for invaluable input and useful comments. We also thank seminar participants at UC San Diego and University of Chicago for helpful feedback. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.