Ambiguity attitudes in a large representative sample

We develop a theorem showing that ambiguity attitudes can easily becaptured by matching probabilities of ambiguous events. Using this result, we introduce a tractable method for measuring ambiguity attitudes, and apply it in a large representative sample. In addition to ambiguity aversion, we confirm an ambiguity component recently found in laboratory studies: a-insensitivity – the tendency to treatsubjective likelihoods as fifty-fifty, thus overweighting extreme events. Our ambiguity measurements are associated with real economic decisions; specifically, a-insensitivity is negatively related to stock market participation and private business ownership. Ambiguity aversion is weakly related to stock market participation, but issignificant only for subjects who perceive stocks returns as highly ambiguous. Reference dependence can explain our findings, and provides a promising direction for future research.

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