Beliefs and Decisions Under Ambiguity: Evidence From The Field (Beliefs and Decisions)

Abstract:

Uncertainty is a fundamental aspect in decision making, and yet we know very little about how decision makers perceive uncertainty, process information and make decisions. Several theories have been developed to explain decision making under uncertainty, but only a handful of studies analyze models of ambiguous choices structurally by estimating latent parameters. We propose a structural analysis of alternative models of decision making under ambiguity. Our study involves a lab experiment with students, and a parallel field experiment with subjects from the general Danish population. The unique feature of our experimental design is the joint elicitation of the individual’s (i) risk preferences, (ii) ambiguity preferences and (iii) subjective beliefs over several candidate distributions of uncertain outcomes (i.e. over priors). In comparison, most of the existing experiments on ambiguity elicit (ii) alone and none of them elicits (iii).