Understanding Ambiguity Attitudes - Ellsberg Choices Among Indian Students
DOI:
https://doi.org/10.17010/pijom/2018/v11i6/128440Keywords:
Ellsberg Paradox
, Ambiguity Aversion, Matching Probability, Decision MakingC90
, D91, G40Paper Submission Date
, October 23, 2017, Paper sent back for Revision, May 16, 2018, Paper Acceptance Date, May 26, 2018.Abstract
Individuals have often displayed a preference for known risk over unknown prospects (Ellsberg, 1961). Different variants of Ellsberg paradox have been widely used by academicians to examine the phenomena of ambiguity aversion among diverse subjects. This study examined ambiguity attitudes through a survey based approach, among a set of Indian students by using a quantitative measurement of ambiguity attitude developed by Dimmock, Kouwenberg, and Wakker (2016). Supporting the ambiguity attitude results of developed markets, a majority of the students exhibited an aversion to ambiguity and risk. The relation between risk and ambiguity attitude is inconclusive and yet to be explored further. Empirical results showed certain demographic variables to be significant in explaining ambiguity attitudes in contrast to results from developed markets. These results can be due to cultural differences, which offer a promising area for future studies. Future studies can explore the impact of family responsibility and commitments on attitudes towards ambiguity. Testing factors determining ambiguity attitude can broaden understanding of ambiguity aversion and how it can be addressed in Asian countries like India, which are collectivist in nature. Role of family commitment and marital responsibilities can elicit ambiguity attitudes different from those of developed countries. Alternatively, the study proposed to explore ambiguity attitude in relation with financial decision making with a more representative sample of investors.Downloads
Downloads
Published
How to Cite
Issue
Section
References
Agarwalla, S. K., Barua, S., Jacob, J., & Varma, J. R. (2012). A survey of financial literacy among students, young employees and the retired in India. Retrieved from https://faculty.iima.ac.in/~iffm/literacy/youngemployessandretired2012.pdf
Al-Najjar, N. I., & Weinstein, J. (2009). The ambiguity aversion literature : A critical assessment. Economics and Philosophy, 25(4), 249 - 284.
Bernoulli, D. (1954). Exposition of a new theory on the measurement of risk. Econometrica, 22(1), 23 - 36.
Blais, A. R., & Weber, E. U. (2006). A domain-specific risk-taking (DOSPERT) scale for adult populations. Judgment and Decision Making, 1(1), 10 - 29.
Borghans, L., Heckman, J. J., Golsteyn, B. H., & Meijers, H. (2009). Gender differences in risk aversion and ambiguity aversion. Journal of the European Economic Association, 7 (2-3), 649 - 658.
Bossaerts, P., Ghirardato, P., Guarnaschelli, S., & Zame, W. (2007). Prices and allocations in asset markets with heterogeneous attitudes towards ambiguity. Review of Financial Studies, 23 (4), 1325 - 1359.
Bryant, W. (2014). The microeconomics of choice under risk and uncertainty : Where are we? Vikalpa, 39(1), 21- 40.
Charness, G., & Gneezy, U. (2010). Portfolio choice and risk attitudes : An experiment. Economic Inquiry, 48(1), 133 - 146.
Dimmock, S. G., Kouwenberg, R., & Wakker, P. P. (2016). Ambiguity attitudes in a large representative sample. Management Science, 62 (5), 1363 - 1380.
Dimmock, S. G., Kouwenberg, R., Mitchell, O. S., & Peijnenburg, K. (2016). Ambiguity aversion and household portfolio choice puzzles: Empirical evidence. Journal of Financial Economics, 119 (3), 559 - 577.
Edwards, W. (1954). The theory of decision making. Psychological Bulletin, 51(4), 380 - 401.
Ellsberg, D. (1961). Risk, ambiguity, and the savage axioms. The Quarterly Journal of Economics, 75 (4), 643 - 669.
Ellsberg, D. (2001). Risk, ambiguity and decision. New York : Taylor & Francis.
Etner, J. J. (2012). Decision theory under ambiguity. Journal of Economic Surveys, 26 (2), 234 -270.
Fox, C. R., & Tversky, A. (1995). Ambiguity aversion and comparative ignorance. The Quarterly Journal of Economics, 110 (3), 585 - 603.
Gautam, S., & Matta, M. (2016). A study of socio-demographic and attitudinal factors on consumer behavior by individual investors in the Indian context. Indian Journal of Finance, 10 (7), 48-59. doi:10.17010/ijf/2016/v10i7/97256
Ghirardato, P., & Marinacci, M. (2002). Ambiguity made precise: A comparative foundation. Journal of Economic Theory, 102 (2) 251-289.
Gilboa, I., Postlewaite, A. W., & Schmeidler, D. (2008). Probability and uncertainty in economic modeling. Journal of Economic Perspectives, 22 (3), 173 - 188.
Glaser, M., & Weber, M. (2007). Overconfidence and trading volume. The Geneva Risk and Insurance Review, 32 (1), 1-36.
Hacking, I. (2006). The emergence of probability (2nd ed.). Cambridge: Cambridge University Press.
Heath, C., & Tversky, A. (1991). Preference and belief: Ambiguity and competence in choice under uncertainty. Journal of Risk and Uncertainty, 4 (1), 5-28.
Kelsey, D., & Quiggin, J. (1992). Theories of choice under ignorance and uncertainty. Journal of Economic Surveys, 6 (2), 133-153.
Knight, F. H. (1921). Risk, uncertainty and profit. Boston: Houghton Mifflin Co.
Lyon, A. (2009). Philosophy of probability. In A. Lyon, & F. Allhoff (Ed.), Philosophies of the sciences (Vol. 1st Edition, p. 368). London : Wiley-Blackwell.
Machina, M. (1987). Choice under uncertainty: Problems solved and unsolved. The Journal of Economic Perspectives, 1 (1) , 121-154.
Machina, M. J., & Siniscalchi, M. (2014). Ambiguity and ambiguity aversion. In M. J. Machina & W. Viscusi (eds.), Handbook of the economics of risk and uncertainty (Vol. 1, pp. 729 - 807). North Holland : Elsevier.
Machina, M., & Schmeidler, D. (1992). A more robust definition of subjective probability. Econometrica, 60 (4), 745-780.
Paramashivaiah, P., Puttaswamy, & Ramya, S. (2014). Changing risk perception of women investors : An empirical study. Indian Journal of Finance, 8 (6), 22 - 33. doi:10.17010/ijf/2014/v8i6/71909
Peterson, M. (2009). An introduction to decision theory. University of California: Cambridge University Press.
Pulford, B. D., & Gill, P. (2014). Good luck, bad luck, and ambiguity aversion. Judgement and Decision Making, 9 (2), 159-166.
Rakow, T. (2010). Risk, uncertainty and prophet: The psychological insights of Frank H. Knight. Judgement and Decision Making, 5 (6), 458 - 466.
Savage, L. (1954). The foundations of statistics. New York: John Wiley.
Schoemaker, P. (2012). Profiting from uncertainty: Strategies for succeeding no matter what the future brings. USA : The Free Press, Simon and Schuster.
Stahl, D. O. (2014). Heterogeneity of ambiguity preferences. Review of Economics and Statistics, 96 (4), 609 - 617.
Trautmann, S. T., Vieider, F. M., & Wakker, P. P. (2008). Causes of ambiguity aversion: Known versus unknown preferences. Journal of Risk and Uncertainty, 36 (3), 225 - 243.
Vadde, S. (2015). Impact of socio-demographic and economic factors on households' savings behaviour: Empirical evidence from Ethiopia. Indian Journal of Finance, 9 (3), 49 - 57. doi:10.17010/ijf/2015/v9i3/71514
Weber, B. J., & Tan, W. P. (2012). Ambiguity aversion in a delay analogue of the Ellsberg Paradox. Judgment and Decision Making, 7(4), 383 - 389.
Weber, M., & Camerer, C. (1987). Recent developments in modelling preferences under risk. Operations - Research-Spektrum, 9 (3), 129-151.
Wenmackers, S. (2011). Philosophy of probability: Foundations, epistemology, and computation. The Netherlands: University of Groningen.
Zeckhauser, R. (2014). New frontiers beyond risk and uncertainty: Ignorance, group decision, and unanticipated themes. In W. K. Machina (ed.), Handbook of the economics of risk and uncertainty. UK: Elsevier, Oxford.
