Ambiguity Aversion in Game Theory: Experimental Evidence

This paper studies games with ambiguity averse agents, focusing on the relationship between preferences, beliefs over opponent’s preferences, and behaviour in normal form games. Using a carefully chosen 3×2 normal form game we find that a subject’s risk and ambiguity preferences affect the subject’s behaviour in normal form games in the direction suggested by economic theories. In contrast, we find no evidence that a subject’s beliefs over their opponent’s private preference information affect behaviour; although in a follow up treatment we find a strong effect of knowledge of an opponent’s preferences on behaviour. This paper is the first to present evidence of a link between ambiguity aversion in individual decision making and behaviour in strategic environments, and is also the first to consider empirically the role of beliefs over an opponent’s private information regarding the opponent’s ambiguity preferences. In addition, we find a positive correlation between subject’s risk and ambiguity preferences.