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  5. Eliciting Ambiguity with Mixing Bets

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Eliciting Ambiguity with Mixing Bets

  • Patrick Schmidt
American Economic Journal: Microeconomics (Forthcoming)

Abstract

Preferences for mixing can reveal ambiguity perception and attitude on a single event. The validity of the approach is discussed for multiple preference classes including maxmin, maxmax, variational, and smooth second-order preferences. An experimental implementation suggests that participants perceive almost as much ambiguity for the stock index and actions of other participants as for the Ellsberg urn, indicating the importance of ambiguity in real-world decision-making.

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