Partial Ambiguity

Econometrica · 2017 · Volume 85 · Issue 4

Abstract

We extend Ellsberg's two-urn paradox and propose three symmetric forms of partial ambiguity by limiting the possible compositions in a deck of 100 red and black cards in three ways. Interval ambiguity involves a symmetric range of 50 −nto 50 +nred cards. Complementarily, disjoint ambiguity arises from two nonintersecting intervals of 0 tonand 100 −nto 100 red cards. Two-point ambiguity involvesnor 100 −nred cards. We investigate experimentally attitudes towards partial ambiguity and the corresponding compound lotteries in which the possible compositions are drawn with equal objective probabilities. This yields three key findings: distinct attitudes towards the three forms of partial ambiguity, significant association across attitudes towards partial ambiguity and compound risk, and source preference between two-point ambiguity and two-point compound risk. Our findings help discriminate among models of ambiguity in the literature.

Keywords

Risk, ambiguity, Ellsberg paradox, experiment, Choquet expected utility, maxmin expected utility, recursive non-expected utility, source preference

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