Ambiguity Attitudes

In many decisions under uncertainty, the decision maker has only vague information about the probabilities of potential outcomes of her actions. Following Ellsberg (1961), such situations with unknown or uncertain probabilities are often called ambiguous, to distinguish them from situations with objectively known probabilities, which are typically called risky. Ellsberg’s 1961 article suggested that decision makers have a preference for risky over ambiguous acts that are equivalent under SEU (Savage, 1954). Ellsberg’s conjecture has initiated a large empirical literature studying the prevalence and the causes of such ambiguity aversion. This literature has shown that attitudes towards ambiguity depend on the likelihood of the uncertain events, the domain of the outcome, and the source that generates the uncertainty. Because both ambiguity aversion and ambiguity seeking have been observed, we employ the more appropriate term ambiguity attitude. A theoretical literature that is mostly independent of the empirical work has developed a large number of models of ambiguity‐averse preferences. These models have subsequently been applied to explain a wide range of behavioral phenomena that are difficult to reconcile with agents who maximize SEU. For example, in financial economics, Easley and O’Hara (2009) show that ambiguity aversion can explain low participation in the stock market despite the potentially high benefits. In medical-decision problems, Berger, Bleichrodt, and Eeckhoudt (2013) find that ambiguity about the diagnosis or the treatment of a medical condition affects treatment decisions. Similarly, Hoy, Peter, and Richter (2013) explain low take‐up of costless genetic tests by reference to ambiguity aversion. Interestingly, the empirical literature has so far provided relatively little evidence linking individual attitudes toward ambiguity to behavior outside the laboratory in these, theoretically, ambiguity‐sensitive decisions. Are those agents who show the strongest degree of ambiguity aversion in some experimental 3