An Anatomy of Ambiguity Attitudes
(with applications to climate change models)
Experimental evidence in economics and psychology has shown that in decisions under uncertainty, people distinguish between situations of risk, where the probabilities of different outcomes are known, and situations of ambiguity, where the probabilities are unknown or uncertain. In particular, in the domain of gain events (“good outcomes”) with modest or large likelihoods, people have been observed to dislike ambiguity. On the basis of these findings, a large literature in economics builds on ambiguity aversion to explain patterns observed in financial markets that cannot easily be explained if investors held neutral attitudes toward ambiguity. However, recent evidence suggests that ambiguity aversion may not generalize to the domain of losses, or to situations where outcomes occur with low likelihood. Methodological heterogeneity across studies that considered different domains so far precludes clear conclusions regarding the domain specificity of ambiguity attitude. We present a study that measures ambiguity attitudes in all domains in a uniform design. We discuss the implications of our results for economic modeling and policy. Co-authorwith AmreiMarie Lahnoand Stefan Trautmann.
Martin G. Kocher is Chair of Behavioral and Experimental Economics at the Department of Economics, University of Munich. He has previously held positions at the University of East Anglia, the University of Amsterdam and the University of Innsbruck, where he obtained his doctorate. Martin Kocher’s research centers on the analysis of incentives on behavior, for instance in auctions, in group decision-making, or in drawing up contracts in principal-agent relationships. He studies trust and reciprocity as well as social dilemmas (the private provision of a public good) and norms. Martin Kocher has published in leading journals in economics, including the American Economic Review, the Review of Economic Studies, Management Science, the Economic Journal and Games and Economic Behavior. He is associate editor of the Journal of Economic Psychology and the Journal of Behavioral and Experimental Economics, director of the experimental laboratory MELESSA at the University of Munich, Visiting Professor at the Economics Department, University of Gothenburg, Adjunct Professor at the Economics Department, Queensland University of Technology, CESifo Research Fellow, and Executive Board Member of the Munich Risk and Insurance Center.
He has been involved in consultancy to the German Ministry of Finance and the Government of Liechtenstein. Martin Kocher’s research has been featured widely in the media, including the London Times, the Guardian, Business Week, BBC, CNN, and German speaking newspapers, magazines and TV stations. He is member of the Scientific Advisory Board of the European Forum Alpbach (EFA) and the EFA Economic Symposium.