Estimating Ambiguity Aversion
in a Portfolio Choice Experiment∗
David Ahn†
UC Berkeley
Syngjoo Choi‡
UCL
Douglas Gale§
NYU
Shachar Kariv¶
UC Berkeley
December 17, 2007
Abstract
We report a laboratory experiment that enables us to estimate
four prominent models of ambiguity aversion — Subjective Expected
Utility (SEU), Maxmin Expected Utility (MEU), Recursive Expected
Utility (REU), and α-Maxmin Expected Utility (α-MEU) — at the
level of the individual subject. We employ graphical representations of
three-dimensional budget sets over bundles of Arrow securities, one of
which promises a unit payoff with a known probability and two with
unknown (ambiguous) probabilities. The sample exhibits considerable
heterogeneity in preferences, as captured through parameter estimates.
Nonetheless, there exists a strong tendency to equate the demands for
∗The experiment was conducted at the Experimental Social Science Laboratory (X-
Lab) at UC Berkeley. We thank Raymond Fisman for detailed comments and sugges-
tions. We are also grateful to Yoram Halevy, Tom Palfrey, Chris Shannon, and Bill Zame
for helpful discussions. This paper has also benefited from suggestions by the partici-
pants of seminars at Berkeley, UCLA, UCSD, and UCL. We acknowledge the National
Science Foundation Grant No. SES-0550224 (Ahn) and SES-0617955 (Gale and Kariv)
for financial support.
†Department of Economics, University of California, Berkeley,
508-1 Evans
Hall # 3880, Berkeley, CA 94720
(E-mail:
dahn@econ.berkeley.edu, URL:
http://www.econ.berkeley.edu/~dahn/).
‡Department
of
Economics,
University
College
London,
Gower
Street,
London WC1E 6BT, UK
(Email:
syngjoo.choi@ucl.ac.uk,
URL:
http://www.homepages.ucl.ac.uk/~uctpsc0).
§Department of Economics, New York University, 19 W. 4th Street, New York, NY,
10012 (E-mail: douglas.gale@nyu.edu, URL: http://www.econ.nyu.edu/user/galed).
¶Department
of
Economics,
University
of
California,
Berkeley,
508-1
Evans Hall # 3880, Berkeley, CA 94720 (E-mail:
kariv@berkeley.edu, URL:
http://socrates.berkeley.edu/~kari