An experimental comparison of investment decisions under risk and ambiguity, with and without trade...
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An experimental comparison of investment decisions under risk and ambiguity, with and without trade Timothy R. Capon and John G. Tisdell
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Transcript of An experimental comparison of investment decisions under risk and ambiguity, with and without trade...
An experimental comparison of investment decisions under risk and ambiguity, with and without trade
Timothy R. Capon and John G. Tisdell
Overview
• Can interactions in market institutions eliminate the effect of ambiguity-aversion on individual decisions?
• Ambiguity is thought to be particularly important for understanding market behaviour e.g. Epstein and Wang (1994).
• We measured risk and ambiguity preferences and studied decisions under risk and ambiguity with and without trade.
• Market incentives and feedback did not eliminate the effect of ambiguity on individual decisions
Outline of this presentation
• Research questions and hypotheses
• Related research
• Methods
• Results
• Measured preferences
• Preferences and market transactions
• Treatment effects
• Summary
Research questions and hypotheses
• What is the relationship between decision-making under risk and ambiguity and market activity?
• A comparison of risk and ambiguity preferences with trade.
• The effect of risk and ambiguity on individual decisions.
• The effect of trade on individual decisions.
• Do market incentives and feedback reduce the effect of ambiguity on individual decisions?
Related research
• Previous experimental studies have examined whether the effect of ambiguity persists in markets and have examined the effects on prices and bids.
• Detecting the effect of ambiguity may depend on the type of market institution.
• The effect of ambiguity may be greater when a risky option is available for comparison.
Experiment design
Without trade With trade
Risk 37 Subjects
5 decision periods
4 market sessions
(10 subjects in each)
5 market periods and
decision periods
Ambiguity 40 Subjects
5 decision periods
4 market sessions
(10 subjects in each)
5 market periods and
decision periods
Methods
Part one
• Measurements of subjects’ preferences under conditions of risk and ambiguity
Part two
• Investment decisions and markets
Measuring risk preferences and ambiguity preferences
• Iterative certainty equivalent procedure
• Paired lottery choices
• Certainty equivalent
• Willingness-to-accept for a lottery draw
• Varied probability choices
Iteration Lottery Expected
xi xl xh utility
1 0 20 0.500
2 0 x1 0.250
3 x1 20 0.750
4 0 x2 0.125
5 x2 x1 0.375
6 x1 x3 0.625
7 x3 20 0.875
Iterative certainty equivalence
Paired lottery choicesOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-preferringOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-preferringOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-preferringOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-preferringOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-neutralOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Willingness-To-Accept
Container A
$ ?
Container B
$ ?
?
Varying the probability
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-neutral
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Methods used to study individual decisions and market trade
• Subjects were allocated 100 investment units at the start of each period.
• They decided how many units to allocate to either:
• Option A with a return of either 8 cents per unit of 0 cents per unit
• Option B with a certain return of 2 cents per unit.
• In market sessions, subjects could trade units in a multiple-unit double auction before making their decisions.
Summary of measurement results
Procedure Median MeanStandard deviation
Paired lottery (gains) 6.00 5.39 1.62
Paired lottery (losses) 6.00 6.42 1.90
CE (gains, $20/$0) $10.00 $10.16 $3.81
CE (losses, $20/$0) $-9.40 $-9.35 $3.58
CE (gains, $8/$0) $3.92 $3.78 $1.49
ICE (gains, exponential) 0.0496 0.0496 0.3109
ICE (gains, power) 0.983 1.0155 0.1878
BDM (risk, $20/$0) $10.00 $10.01 $5.01
BDM (ambiguity, $20/$0) $8.00 $8.95 $5.68
BDM ratio 1.20 1.36 0.49
Prob. Equiv. (ambiguity) 42.00% 40.76% 14.46%
Summary of measurement results
Procedure Median MeanStandard deviation
Paired lottery (gains) 6.00 5.39 1.62
Paired lottery (losses) 6.00 6.42 1.90
CE (gains, $20/$0) $10.00 $10.16 $3.81
CE (losses, $20/$0) $-9.40 $-9.35 $3.58
CE (gains, $8/$0) $3.92 $3.78 $1.49
ICE (gains, exponential) 0.0496 0.0496 0.3109
ICE (gains, power) 0.983 1.0155 0.1878
BDM (risk, $20/$0) $10.00 $10.01 $5.01
BDM (ambiguity, $20/$0) $8.00 $8.95 $5.68
BDM ratio 1.20 1.36 0.49
Prob. Equiv. (ambiguity) 42.00% 40.76% 14.46%
Summary of measurement results
Procedure Median MeanStandard deviation
Paired lottery (gains) 6.00 5.39 1.62
Paired lottery (losses) 6.00 6.42 1.90
CE (gains, $20/$0) $10.00 $10.16 $3.81
CE (losses, $20/$0) $-9.40 $-9.35 $3.58
CE (gains, $8/$0) $3.92 $3.78 $1.49
ICE (gains, exponential) 0.0496 0.0496 0.3109
ICE (gains, power) 0.983 1.0155 0.1878
BDM (risk, $20/$0) $10.00 $10.01 $5.01
BDM (ambiguity, $20/$0) $8.00 $8.95 $5.68
BDM ratio 1.20 1.36 0.49
Prob. Equiv. (ambiguity) 42.00% 40.76% 14.46%
Summary of measurement results
Procedure Median MeanStandard deviation
Paired lottery (gains) 6.00 5.39 1.62
Paired lottery (losses) 6.00 6.42 1.90
CE (gains, $20/$0) $10.00 $10.16 $3.81
CE (losses, $20/$0) $-9.40 $-9.35 $3.58
CE (gains, $8/$0) $3.92 $3.78 $1.49
ICE (gains, exponential) 0.0496 0.0496 0.3109
ICE (gains, power) 0.983 1.0155 0.1878
BDM (risk, $20/$0) $10.00 $10.01 $5.01
BDM (ambiguity, $20/$0) $8.00 $8.95 $5.68
BDM ratio 1.20 1.36 0.49
Prob. Equiv. (ambiguity) 42.00% 40.76% 14.46%
Correlations between measurements
Pearson CorrelationsCE
(gains, $20/$0)
CE(losses, $20/$0)
CE(gains, $8/$0)
BDM(risk,
$20/$0)
ICE (gains, exponential)
CE(gains, $8/$0)
Correlation Coefficient .463(**) 1
Significance .000BDM
(ambiguity,$20/$0)
Correlation Coefficient .359(**) .320(*) .731(**)
Significance .004 .011 .000
Paired lotteries (gains)
Correlation Coefficient -.298(*) .268(*)
Significance .018 .034
Paired lotteries (losses)
Correlation Coefficient .305(*)
Significance .015Probability
Equivalence (ambiguity)
Correlation Coefficient .249(*)
Significance .049
BDM ratioCorrelation Coefficient .268(*)
Significance .033
ICE (gains, exponential)
Correlation Coefficient .665(**) .435(**) 1
Significance .000 .000
ICE (gains, power)
Correlation Coefficient .745(**) .444(**) .922(**)
Significance .000 .000 .000
Correlations between measurements
Pearson CorrelationsCE
(gains, $20/$0)
CE(losses, $20/$0)
CE(gains, $8/$0)
BDM(risk,
$20/$0)
ICE (gains, exponential)
CE(gains, $8/$0)
Correlation Coefficient .463(**) 1
Significance .000BDM
(ambiguity,$20/$0)
Correlation Coefficient .359(**) .320(*) .731(**)
Significance .004 .011 .000
Paired lotteries (gains)
Correlation Coefficient -.298(*) .268(*)
Significance .018 .034
Paired lotteries (losses)
Correlation Coefficient .305(*)
Significance .015Probability
Equivalence (ambiguity)
Correlation Coefficient .249(*)
Significance .049
BDM ratioCorrelation Coefficient .268(*)
Significance .033
ICE (gains, exponential)
Correlation Coefficient .665(**) .435(**) 1
Significance .000 .000
ICE (gains, power)
Correlation Coefficient .745(**) .444(**) .922(**)
Significance .000 .000 .000
Correlations between measurements
Pearson CorrelationsCE
(gains, $20/$0)
CE(losses, $20/$0)
CE(gains, $8/$0)
BDM(risk,
$20/$0)
ICE (gains, exponential)
CE(gains, $8/$0)
Correlation Coefficient .463(**) 1
Significance .000BDM
(ambiguity,$20/$0)
Correlation Coefficient .359(**) .320(*) .731(**)
Significance .004 .011 .000
Paired lotteries (gains)
Correlation Coefficient -.298(*) .268(*)
Significance .018 .034
Paired lotteries (losses)
Correlation Coefficient .305(*)
Significance .015Probability
Equivalence (ambiguity)
Correlation Coefficient .249(*)
Significance .049
BDM ratioCorrelation Coefficient .268(*)
Significance .033
ICE (gains, exponential)
Correlation Coefficient .665(**) .435(**) 1
Significance .000 .000
ICE (gains, power)
Correlation Coefficient .745(**) .444(**) .922(**)
Significance .000 .000 .000
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Measured preferences and trade direction
ProcedureRight
directionWrong
directionSame
measureMissing measure
Chi square
Sig. (p value)
CE (gains, $20/$0) 0.41 0.19 0.22 0.17 25.258(**) 0.000
CE (losses, $20/$0) 0.54 0.29 0.02 0.15 25.801(**) 0.000
CE (gains, $8/$0) 0.34 0.29 0.01 0.36 1.108 0.292
ICE (gains, exponential) 0.54 0.43 0.02 0 3.889(*) 0.049
ICE (gains, power) 0.56 0.44 0 0 4.738(*) 0.029
BDM (risk, $20/$0) 0.62 0.33 0.05 0 29.590(**) 0.000
BDM (ambiguity,$20/$0) 0.62 0.35 0.02 0 24.662(**) 0.000
BDM ratio 0.54 0.38 0.09 0 9.197(*) 0.002
Paired lotteries (gains) 0.27 0.29 0.16 0.29 0.14 0.709
Paired lotteries (losses) 0.3 0.16 0.12 0.42 13.620(**) 0.000
Prob. Equiv. (ambiguity) 0.43 0.47 0.1 0 0.585 0.444
Measured preferences and trade direction
ProcedureRight
directionWrong
directionSame
measureMissing measure
Chi square
Sig. (p value)
CE (gains, $20/$0) 0.41 0.19 0.22 0.17 25.258(**) 0.000
CE (losses, $20/$0) 0.54 0.29 0.02 0.15 25.801(**) 0.000
CE (gains, $8/$0) 0.34 0.29 0.01 0.36 1.108 0.292
ICE (gains, exponential) 0.54 0.43 0.02 0 3.889(*) 0.049
ICE (gains, power) 0.56 0.44 0 0 4.738(*) 0.029
BDM (risk, $20/$0) 0.62 0.33 0.05 0 29.590(**) 0.000
BDM (ambiguity,$20/$0) 0.62 0.35 0.02 0 24.662(**) 0.000
BDM ratio 0.54 0.38 0.09 0 9.197(*) 0.002
Paired lotteries (gains) 0.27 0.29 0.16 0.29 0.14 0.709
Paired lotteries (losses) 0.3 0.16 0.12 0.42 13.620(**) 0.000
Prob. Equiv. (ambiguity) 0.43 0.47 0.1 0 0.585 0.444
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Analysis of treatment effects
Effect of risk and ambiguity
• The mean proportion of investment units allocated to the uncertain option was significantly higher under risk than ambiguity (p = 0.009).
Effect of trade
• The mean proportion of investment units allocated to the uncertain option was significantly higher with trade than without trade (p = 0.046).
Analysis of treatment effects
Do market incentives and feedback reduce the effect of ambiguity on individual decisions?
• The hypothesized interaction between the market treatment and the information treatment was not significant (p = 0.918), although the difference in mean contributions was in the direction predicted.
Summary
• Although mean responses to the measurement procedures were close to risk-neutral, subjects exhibited a range of risk and ambiguity preferences.
• The direction of trade observed was consistent with many of the measurement procedures.
• An effect of information (risk vs ambiguity) and an effect of trade was observed.
• Market incentives and feedback did not eliminate the effect of ambiguity.
Acknowledgements
• I would like to acknowledge the support of my supervisor and co-author, John Tisdell.
• I would also like to acknowledge the support of the Australian Rivers Institute, the Griffith School of the Environment, and Griffith University.
• Questions?
Markets
Ellsberg Phenomenon
Container A Container B
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