Congratulations to Professor Aurélien Baillon and Associate Professor Chen Li of Erasmus School of Economics and Professor Yoram Halevy (University of Toronto), on the acceptance of their paper “Randomize at your own Risk: on the Observability of Ambiguity Aversion”, by the world-renowned journal Econometrica.
Many risks we face, for instance when a new disease appears, are ambiguous: we don’t know the probability of getting sick or severe consequences. This ambiguity affects the behavior of people. This is called ambiguity attitudes, a typical example of which is ambiguity aversion, the dislike of not knowing the risks we face. Over the years, many researchers have tried to measure the prevalence of ambiguity aversion in the population. This is typically done by asking people to make several decisions and to compare them.
Facing several decisions, people may consider each one in isolation or integrate them into a single problem. Theoretical arguments have been made that measuring ambiguity aversion with several decisions makes ambiguity-averse participants who integrate behave as if they were ambiguity neutral. In other words, theorists have argued that we might not be able to really observe the extent of ambiguity aversion. This is a theoretical argument but is it the case in practice?
In an experimental study, Aurélien Baillon, Yoram Halevy and Chen Li found that about half of the ambiguity averse subjects integrated their choices in the experiment into a single problem, whereas the other half isolated. Hence, the typical way to measure the prevalence of ambiguity aversion might be biased downwards and past studies may have vastly underestimated it.
About the researchers
Aurelien Baillon is Professor of Economics of Uncertainty in the department of Applied Economics. His work focuses on individual decision making under risk and ambiguity. Through both empirical and theoretical studies, his research addresses issues in subjective probability elicitation, models of attitude towards risk and ambiguity, and aggregation of expert opinions. Chen Li is Associate Professor in Behavioural Economics at Erasmus School of Economics. Chen focuses on decision making under uncertainty and over time. Her research addresses questions such as whether the poor are more averse to ambiguity, how learning affect people's ambiguity attitudes, and how people's beliefs and attitudes towards uncertainty affect their decisions in social interactions. Yoram Halevy is Professor of Economics and Director of the Toronto Experimental Economics Lab (TEEL) at the Department of Economics, University of Toronto. His research interests are individual and strategic decision making, which he studies using theoretical and experimental tools. He is particularly interested in what constitutes “rational” behaviour and investigating how (bounded) rationality can be revealed in various environments.
Established in 1933, Econometrica is a top-rated peer-reviewed academic journal of economics, published by Wiley-Blackwell on behalf of the Econometric Society. Econometrica publishes original articles in all branches of economics - theoretical and empirical, abstract and applied, providing wide-ranging coverage across the subject area.
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