Document Type
Article
Publication Date
2-1-2016
Published In
Journal Of Risk And Uncertainty
Abstract
We present a simple model where preferences with complexity aversion, rather than ambiguity aversion, resolve the Ellsberg paradox. We test our theory using laboratory experiments where subjects choose among lotteries that “range” from a simple risky lottery, through risky but more complex lotteries, to one similar to Ellsberg’s ambiguity urn. Our model ranks lotteries according to their complexity and makes different—at times contrasting—predictions than most models of ambiguity in response to manipulations of prizes. The results support that complexity aversion preferences play an important and separate role from beliefs with ambiguity aversion in explaining behavior under uncertainty.
Keywords
Ambiguity, Complexity, Compound risk, Ellsberg paradox, Risk, Uncertainty
Recommended Citation
J. Kovářík, D. Levin, and Tao Wang.
(2016).
"Ellsberg Paradox: Ambiguity And Complexity Aversions Compared".
Journal Of Risk And Uncertainty.
Volume 52,
Issue 1.
47-64.
DOI: 10.1007/s11166-016-9232-0
https://works.swarthmore.edu/fac-economics/353
Comments
This work is a post-print that is freely available courtesy of Springer Verlag.
The final publication version can be freely accessed courtesy of Springer Nature's SharedIt service.