|Researchers:||Jan Pieter Krahnen, Peter Ockenfels, Christian Wilde|
|Category:||Financial Intermediation, Transparency Lab, Experiment Center|
Topic & Objectives
Unlike in most existing models on financial markets, it is unrealistic to assume that market participants know exact probabilities of the states of the world. How do market participants deal with ambiguity? How does uncertainty regarding the distribution of risks in the financial system affect financial stability? The financial crisis has demonstrated possible consequences of imperfect information.
The goal of this project is a theoretical and experimental analysis of the impact of ambiguous information about probabilities on market participants, price evolution, and the financial system. A systematic analysis of individual attitudes towards ambiguity has been done based on laboratory experiments.
- Ambiguity aversion is on average much more pronounced than human aversion against risk.
- Our results provide evidence that maxmin expected utility does not adequately capture individual attitudes towards ambiguity.
|55||Jan Pieter Krahnen, Peter Ockenfels, Christian Wilde||Measuring Ambiguity Aversion: A Systematic Experimental Approach||2014||Financial Intermediation, Transparency Lab, Experiment Center||ambiguity, valuation discount, experimental economics|