an experimental comparison of investment decisions under risk and ambiguity, with and without trade...
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An experimental comparison of investment decisions under risk and ambiguity, with and without trade
Timothy R. Capon and John G. Tisdell
Overview
• Can interactions in market institutions eliminate the effect of ambiguity-aversion on individual decisions?
• Ambiguity is thought to be particularly important for understanding market behaviour e.g. Epstein and Wang (1994).
• We measured risk and ambiguity preferences and studied decisions under risk and ambiguity with and without trade.
• Market incentives and feedback did not eliminate the effect of ambiguity on individual decisions
Outline of this presentation
• Research questions and hypotheses
• Related research
• Methods
• Results
• Measured preferences
• Preferences and market transactions
• Treatment effects
• Summary
Research questions and hypotheses
• What is the relationship between decision-making under risk and ambiguity and market activity?
• A comparison of risk and ambiguity preferences with trade.
• The effect of risk and ambiguity on individual decisions.
• The effect of trade on individual decisions.
• Do market incentives and feedback reduce the effect of ambiguity on individual decisions?
Related research
• Previous experimental studies have examined whether the effect of ambiguity persists in markets and have examined the effects on prices and bids.
• Detecting the effect of ambiguity may depend on the type of market institution.
• The effect of ambiguity may be greater when a risky option is available for comparison.
Experiment design
Without trade With trade
Risk 37 Subjects
5 decision periods
4 market sessions
(10 subjects in each)
5 market periods and
decision periods
Ambiguity 40 Subjects
5 decision periods
4 market sessions
(10 subjects in each)
5 market periods and
decision periods
Methods
Part one
• Measurements of subjects’ preferences under conditions of risk and ambiguity
Part two
• Investment decisions and markets
Measuring risk preferences and ambiguity preferences
• Iterative certainty equivalent procedure
• Paired lottery choices
• Certainty equivalent
• Willingness-to-accept for a lottery draw
• Varied probability choices
Iteration Lottery Expected
xi xl xh utility
1 0 20 0.500
2 0 x1 0.250
3 x1 20 0.750
4 0 x2 0.125
5 x2 x1 0.375
6 x1 x3 0.625
7 x3 20 0.875
Iterative certainty equivalence
Paired lottery choicesOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-preferringOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-preferringOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-preferringOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-preferringOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-neutralOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Risk-averseOption A EV(A) Option B EV(B) EV(B) - EV(A)
0/10 of $3.85, 10/10 of $0.10 0.1 0/10 of $2.00, 10/10 of $1.60 1.6 1.500
1/10 of $3.85, 9/10 of $0.10 0.475 1/10 of $2.00, 9/10 of $1.60 1.64 1.165
2/10 of $3.85, 8/10 of $0.10 0.85 2/10 of $2.00, 8/10 of $1.60 1.68 0.830
3/10 of $3.85, 7/10 of $0.10 1.225 3/10 of $2.00, 7/10 of $1.60 1.72 0.495
4/10 of $3.85, 6/10 of $0.10 1.6 4/10 of $2.00, 6/10 of $1.60 1.76 0.160
5/10 of $3.85, 5/10 of $0.10 1.975 5/10 of $2.00, 5/10 of $1.60 1.8 -0.175
6/10 of $3.85, 4/10 of $0.10 2.35 6/10 of $2.00, 4/10 of $1.60 1.84 -0.510
7/10 of $3.85, 3/10 of $0.10 2.725 7/10 of $2.00, 3/10 of $1.60 1.88 -0.845
8/10 of $3.85, 2/10 of $0.10 3.1 8/10 of $2.00, 2/10 of $1.60 1.92 -1.180
9/10 of $3.85, 1/10 of $0.10 3.475 9/10 of $2.00, 1/10 of $1.60 1.96 -1.515
10/10 of $3.85, 0/10 of $0.10 3.85 10/10 of $2.00, 0/10 of $1.60 2 -1.850
Willingness-To-Accept
Container A
$ ?
Container B
$ ?
?
Varying the probability
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-averse
Container A Container B
?
Ambiguity-neutral
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Ambiguity-preferring
Container A Container B
?
Methods used to study individual decisions and market trade
• Subjects were allocated 100 investment units at the start of each period.
• They decided how many units to allocate to either:
• Option A with a return of either 8 cents per unit of 0 cents per unit
• Option B with a certain return of 2 cents per unit.
• In market sessions, subjects could trade units in a multiple-unit double auction before making their decisions.
Summary of measurement results
Procedure Median MeanStandard deviation
Paired lottery (gains) 6.00 5.39 1.62
Paired lottery (losses) 6.00 6.42 1.90
CE (gains, $20/$0) $10.00 $10.16 $3.81
CE (losses, $20/$0) $-9.40 $-9.35 $3.58
CE (gains, $8/$0) $3.92 $3.78 $1.49
ICE (gains, exponential) 0.0496 0.0496 0.3109
ICE (gains, power) 0.983 1.0155 0.1878
BDM (risk, $20/$0) $10.00 $10.01 $5.01
BDM (ambiguity, $20/$0) $8.00 $8.95 $5.68
BDM ratio 1.20 1.36 0.49
Prob. Equiv. (ambiguity) 42.00% 40.76% 14.46%
Summary of measurement results
Procedure Median MeanStandard deviation
Paired lottery (gains) 6.00 5.39 1.62
Paired lottery (losses) 6.00 6.42 1.90
CE (gains, $20/$0) $10.00 $10.16 $3.81
CE (losses, $20/$0) $-9.40 $-9.35 $3.58
CE (gains, $8/$0) $3.92 $3.78 $1.49
ICE (gains, exponential) 0.0496 0.0496 0.3109
ICE (gains, power) 0.983 1.0155 0.1878
BDM (risk, $20/$0) $10.00 $10.01 $5.01
BDM (ambiguity, $20/$0) $8.00 $8.95 $5.68
BDM ratio 1.20 1.36 0.49
Prob. Equiv. (ambiguity) 42.00% 40.76% 14.46%
Summary of measurement results
Procedure Median MeanStandard deviation
Paired lottery (gains) 6.00 5.39 1.62
Paired lottery (losses) 6.00 6.42 1.90
CE (gains, $20/$0) $10.00 $10.16 $3.81
CE (losses, $20/$0) $-9.40 $-9.35 $3.58
CE (gains, $8/$0) $3.92 $3.78 $1.49
ICE (gains, exponential) 0.0496 0.0496 0.3109
ICE (gains, power) 0.983 1.0155 0.1878
BDM (risk, $20/$0) $10.00 $10.01 $5.01
BDM (ambiguity, $20/$0) $8.00 $8.95 $5.68
BDM ratio 1.20 1.36 0.49
Prob. Equiv. (ambiguity) 42.00% 40.76% 14.46%
Summary of measurement results
Procedure Median MeanStandard deviation
Paired lottery (gains) 6.00 5.39 1.62
Paired lottery (losses) 6.00 6.42 1.90
CE (gains, $20/$0) $10.00 $10.16 $3.81
CE (losses, $20/$0) $-9.40 $-9.35 $3.58
CE (gains, $8/$0) $3.92 $3.78 $1.49
ICE (gains, exponential) 0.0496 0.0496 0.3109
ICE (gains, power) 0.983 1.0155 0.1878
BDM (risk, $20/$0) $10.00 $10.01 $5.01
BDM (ambiguity, $20/$0) $8.00 $8.95 $5.68
BDM ratio 1.20 1.36 0.49
Prob. Equiv. (ambiguity) 42.00% 40.76% 14.46%
Correlations between measurements
Pearson CorrelationsCE
(gains, $20/$0)
CE(losses, $20/$0)
CE(gains, $8/$0)
BDM(risk,
$20/$0)
ICE (gains, exponential)
CE(gains, $8/$0)
Correlation Coefficient .463(**) 1
Significance .000BDM
(ambiguity,$20/$0)
Correlation Coefficient .359(**) .320(*) .731(**)
Significance .004 .011 .000
Paired lotteries (gains)
Correlation Coefficient -.298(*) .268(*)
Significance .018 .034
Paired lotteries (losses)
Correlation Coefficient .305(*)
Significance .015Probability
Equivalence (ambiguity)
Correlation Coefficient .249(*)
Significance .049
BDM ratioCorrelation Coefficient .268(*)
Significance .033
ICE (gains, exponential)
Correlation Coefficient .665(**) .435(**) 1
Significance .000 .000
ICE (gains, power)
Correlation Coefficient .745(**) .444(**) .922(**)
Significance .000 .000 .000
Correlations between measurements
Pearson CorrelationsCE
(gains, $20/$0)
CE(losses, $20/$0)
CE(gains, $8/$0)
BDM(risk,
$20/$0)
ICE (gains, exponential)
CE(gains, $8/$0)
Correlation Coefficient .463(**) 1
Significance .000BDM
(ambiguity,$20/$0)
Correlation Coefficient .359(**) .320(*) .731(**)
Significance .004 .011 .000
Paired lotteries (gains)
Correlation Coefficient -.298(*) .268(*)
Significance .018 .034
Paired lotteries (losses)
Correlation Coefficient .305(*)
Significance .015Probability
Equivalence (ambiguity)
Correlation Coefficient .249(*)
Significance .049
BDM ratioCorrelation Coefficient .268(*)
Significance .033
ICE (gains, exponential)
Correlation Coefficient .665(**) .435(**) 1
Significance .000 .000
ICE (gains, power)
Correlation Coefficient .745(**) .444(**) .922(**)
Significance .000 .000 .000
Correlations between measurements
Pearson CorrelationsCE
(gains, $20/$0)
CE(losses, $20/$0)
CE(gains, $8/$0)
BDM(risk,
$20/$0)
ICE (gains, exponential)
CE(gains, $8/$0)
Correlation Coefficient .463(**) 1
Significance .000BDM
(ambiguity,$20/$0)
Correlation Coefficient .359(**) .320(*) .731(**)
Significance .004 .011 .000
Paired lotteries (gains)
Correlation Coefficient -.298(*) .268(*)
Significance .018 .034
Paired lotteries (losses)
Correlation Coefficient .305(*)
Significance .015Probability
Equivalence (ambiguity)
Correlation Coefficient .249(*)
Significance .049
BDM ratioCorrelation Coefficient .268(*)
Significance .033
ICE (gains, exponential)
Correlation Coefficient .665(**) .435(**) 1
Significance .000 .000
ICE (gains, power)
Correlation Coefficient .745(**) .444(**) .922(**)
Significance .000 .000 .000
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Procedure Preferring Neutral Averse Other
Paired lotteries (gains) 8 20 28 7
Paired lotteries (losses) 23 15 19 6
CE (gains, $20/$0) 28 7 27 1
CE (losses, $20/$0) 37 3 21 2
CE (gains, $8/$0) 21 11 29 2
ICE (gains, exponential) 28 2 31 2
ICE (gains, power) 33 2 26 2
BDM (risk, $20/$0) 24 14 25 0
BDM (ambiguity, $20/$0)
33 12 18 0
BDM ratio 10 22 31 0
Prob. Equiv. (ambiguity) 8 10 44 1
Classification of subjects
Measured preferences and trade direction
ProcedureRight
directionWrong
directionSame
measureMissing measure
Chi square
Sig. (p value)
CE (gains, $20/$0) 0.41 0.19 0.22 0.17 25.258(**) 0.000
CE (losses, $20/$0) 0.54 0.29 0.02 0.15 25.801(**) 0.000
CE (gains, $8/$0) 0.34 0.29 0.01 0.36 1.108 0.292
ICE (gains, exponential) 0.54 0.43 0.02 0 3.889(*) 0.049
ICE (gains, power) 0.56 0.44 0 0 4.738(*) 0.029
BDM (risk, $20/$0) 0.62 0.33 0.05 0 29.590(**) 0.000
BDM (ambiguity,$20/$0) 0.62 0.35 0.02 0 24.662(**) 0.000
BDM ratio 0.54 0.38 0.09 0 9.197(*) 0.002
Paired lotteries (gains) 0.27 0.29 0.16 0.29 0.14 0.709
Paired lotteries (losses) 0.3 0.16 0.12 0.42 13.620(**) 0.000
Prob. Equiv. (ambiguity) 0.43 0.47 0.1 0 0.585 0.444
Measured preferences and trade direction
ProcedureRight
directionWrong
directionSame
measureMissing measure
Chi square
Sig. (p value)
CE (gains, $20/$0) 0.41 0.19 0.22 0.17 25.258(**) 0.000
CE (losses, $20/$0) 0.54 0.29 0.02 0.15 25.801(**) 0.000
CE (gains, $8/$0) 0.34 0.29 0.01 0.36 1.108 0.292
ICE (gains, exponential) 0.54 0.43 0.02 0 3.889(*) 0.049
ICE (gains, power) 0.56 0.44 0 0 4.738(*) 0.029
BDM (risk, $20/$0) 0.62 0.33 0.05 0 29.590(**) 0.000
BDM (ambiguity,$20/$0) 0.62 0.35 0.02 0 24.662(**) 0.000
BDM ratio 0.54 0.38 0.09 0 9.197(*) 0.002
Paired lotteries (gains) 0.27 0.29 0.16 0.29 0.14 0.709
Paired lotteries (losses) 0.3 0.16 0.12 0.42 13.620(**) 0.000
Prob. Equiv. (ambiguity) 0.43 0.47 0.1 0 0.585 0.444
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Percentage of investment units allocated to the uncertain option
Treatment Mean Standard deviation
Risk + Market 85.7 18.8
Risk 78.0 25.9
Ambiguity + Market 76.8 28.4
Ambiguity 67.8 26.7
Grand mean 73.5 29.8
Analysis of treatment effects
Effect of risk and ambiguity
• The mean proportion of investment units allocated to the uncertain option was significantly higher under risk than ambiguity (p = 0.009).
Effect of trade
• The mean proportion of investment units allocated to the uncertain option was significantly higher with trade than without trade (p = 0.046).
Analysis of treatment effects
Do market incentives and feedback reduce the effect of ambiguity on individual decisions?
• The hypothesized interaction between the market treatment and the information treatment was not significant (p = 0.918), although the difference in mean contributions was in the direction predicted.
Summary
• Although mean responses to the measurement procedures were close to risk-neutral, subjects exhibited a range of risk and ambiguity preferences.
• The direction of trade observed was consistent with many of the measurement procedures.
• An effect of information (risk vs ambiguity) and an effect of trade was observed.
• Market incentives and feedback did not eliminate the effect of ambiguity.
Acknowledgements
• I would like to acknowledge the support of my supervisor and co-author, John Tisdell.
• I would also like to acknowledge the support of the Australian Rivers Institute, the Griffith School of the Environment, and Griffith University.
• Questions?
Markets
Ellsberg Phenomenon
Container A Container B
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