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Although much of the theoretical and applied literature involving decision under ambiguity works under the assumption of uncertainty aversion, experimental evidence suggests that it is not a universal behavioural trait. This paper introduces and axiomatises the family of α -UA (for α -Uncertainty Attitude) preferences: a simple extension of uncertainty averse preferences with a Hurwicz-style mixing coefficient, so as to admit a richer range of uncertainty attitudes. The parameters of the model are uniquely identified in our characterisation. It provides, in the Hurwicz α -maxmin EU special case, a new resolution of a long-standing identification problem. It also yields novel models, including extensions of variational and multiplier preferences. Comparative statics support the interpretation of the mixing coefficient as an index of imprecision aversion. In a standard portfolio problem, the model yields the intuitive relationship between imprecision aversion and investment in an uncertain asset: as the former increases, the latter decreases. [ABSTRACT FROM AUTHOR]

This paper provides a micro-foundation for approximate incentive compatibility using ambiguity aversion. In particular, we propose a novel notion of approximate interim incentive compatibility, approximate local incentive compatibility , and establish an equivalence between approximate local incentive compatibility in a Bayesian environment and exact interim incentive compatibility in the presence of a small degree of ambiguity. We then apply our result to the implementation of efficient allocations. In particular, we identify two economic settings—including ones in which approximately efficient allocations are implementable and ones in which agents are informationally small—in which efficient allocations are approximately locally implementable when agents are Bayesian. Applying our result to those settings, we conclude that efficient allocations are exactly implementable when agents perceive a small degree of ambiguity. [ABSTRACT FROM AUTHOR]

Semi-consistent conditional preferences are inconsistent enough for different ambiguity attitudes to manifest themselves in different behavior and consistent enough for information to be generically valuable. To simultaneously achieve these two desiderata I assume exactly one type of dynamic inconsistency: agents do not update their preferences upon learning independent randomization outcomes. [ABSTRACT FROM AUTHOR]

This paper examines the difference between strategic ambiguity as in game theory and ambiguity arising in individual decisions. We identify a new, non-strategic component underlying all strategic ambiguities, called social ambiguity. We recommend controlling for it to better identify strategic causes. Thus, we shed new light on Bohnet and Zeckhauser's betrayal aversion in the trust game. We first show theoretically that, contrary to preceding claims in the literature, ambiguity attitudes can play a role here. We then show experimentally that social ambiguity, rather than betrayal aversion, can explain our empirical findings. Using our new control, we identify the unique effect of strategic ambiguity. Strategic complexity increases ambiguity perception and thus increases people's likelihood insensitivity when making decisions under strategic ambiguity. Our results show the usefulness of controlling for ambiguity attitudes before speculating on strategic factors. [ABSTRACT FROM AUTHOR]

We study whether the basic tenets of the theory of zero-sum games are still valid when players are uncertainty averse. We focus on games with one-sided information, in which the uninformed player is uncertain about the state of nature. Uncertainty aversion turns the underlying zero-sum game into a many-player, non-zero-sum game. We show that the uninformed player has a unique equilibrium payoff. We provide conditions under which there is a unique equilibrium payoff vector. [ABSTRACT FROM AUTHOR]

Ambiguity aversion arises when a decision maker prefers risky gambles with known probabilities over equivalent ambiguous gambles with unknown probabilities. This phenomenon has been consistently observed in adults across a large body of empirical work. Evaluating ambiguity aversion in young children, however, has posed methodological challenges because probabilistic representations appropriate for adults might not be understood by young children. Here, we established a novel method for representing risk and ambiguity with physical objects that overcomes previous methodological limitations and allows us to measure ambiguity aversion in young children. We found that individual 5-year-olds exhibited consistent choice preferences and, as a group, exhibited no ambiguity aversion in a task that evokes ambiguity aversion in adults. Across individuals, 5-year-olds exhibited greater variance in ambiguity preferences compared with adults tested under similar conditions. This suggests that ambiguity aversion is absent during early childhood and emerges over the course of development. [ABSTRACT FROM AUTHOR]

Studies on decision-making under uncertainty have mainly focused on understanding preferences for either risk or ambiguity using standard lottery designs. However, people often face uncertainty that directly stems from interacting with other people, which may be processed differently from lottery-based uncertainty. Here, we substantially extend the investigation of uncertainty by examining a fourfold pattern of the sources and the types of uncertainty, assessing behavioral and neural responses to both risk and ambiguity across both social and non-social contexts. A key element in our research design was to control for participants' naturally occurring social beliefs, and taking these a priori beliefs into account allow us to elicit individual preferences in accordance with economic approaches that stress the dynamics of ambiguity preference as a function of underlying likelihoods. Using this design, we find a behavioral main effect of ambiguity aversion, with increasing ambiguity aversion as a function of higher beliefs regarding the likelihood of reciprocity, and related neural activity in the right IPS. This brain region was primarily involved when participants experienced lottery-based uncertainty as opposed to social uncertainty. However, we found that the right IFG was more involved when participants made decisions under social, as compared to non-social, uncertainty. Overall, therefore, the IPS may activate an analytic mindset, which might resonate more with a lottery than a social context, whereas the IFG is engaged when the context requires players to resolve uncertainty, such as unraveling the intentions behind the choice of another person. [ABSTRACT FROM AUTHOR]

Abstract: We demonstrate that people can adopt a favorable view of ambiguous risks relative to ones with known probabilities, contrary to the usual attitude of ambiguity aversion, when doing so permits justification for unfair behavior. We use binary dictator games involving a choice between a relatively equitable allocation and an “unfair” allocation that is both less generous and makes the recipient''s payment dependent on a lottery. Dictators choose the unfair option more frequently when the recipient''s allocation depends on an ambiguous lottery than on a lottery with a known probability — even though the objective distributions of outcomes are identical under the two kinds of lotteries. Dictators'' estimates of the expected value of the recipients'' allocations are inflated under ambiguity, indicating that dictators form self-serving beliefs about ambiguity. Finally, increased unfair behavior under ambiguity is extinguished when dictators are constrained by their own initial unmotivated, and negative, attitudes towards ambiguity. [Copyright &y& Elsevier]

Abstract: Several papers, adopting an axiomatic approach to study decision making under ambiguity aversion, have produced conflicting predictions about how decision makers would behave in simple dynamic urn problems. We explore the concepts of ambiguity aversion and dynamic consistency, with examples of dynamic games against nature. Basically, a malevolent nature puts balls into the urn, and a fair nature draws them out. Depending on the game, various choices that seem inconsistent with static notions of ambiguity aversion or dynamic consistency are consistent with subgame perfection. In the dynamic 3-color Ellsberg urn problem with 30 red balls and 60 blue or green balls, the decision maker could strictly prefer to bet on blue–green at time 0, and to switch to red–green after learning that the ball is not green. [Copyright &y& Elsevier]