Randomization advice and ambiguity aversion

TL;DR

This paper investigates how ambiguity aversion influences decision-making, revealing that behavior is shaped by incomplete understanding and that clearer information aligns choices with ambiguity-averse models, suggesting normative appeal.

Contribution

It provides experimental evidence that ambiguity-averse behavior is partly driven by understanding and clarifies the normative appeal of such preferences.

Findings

Behavior reflects incomplete understanding of the problem

Additional clarification aligns choices with ambiguity aversion models

Subjects find ambiguity-averse behavior normatively appealing

Abstract

We design and implement lab experiments to evaluate the normative appeal of behavior arising from models of ambiguity-averse preferences. We report two main empirical findings. First, we demonstrate that behavior reflects an incomplete understanding of the problem, providing evidence that subjects do not act on the basis of preferences alone. Second, additional clarification of the decision making environment pushes subjects' choices in the direction of ambiguity aversion models, regardless of whether or not the choices are also consistent with subjective expected utility, supporting the position that subjects find such behavior normatively appealing.