Choices in ambiguous settings

Lab experiments.

2018-03-28

2018-05-08

The proportion of subjects betting white after YG and GY preliminary draws in (1).
The proportion of subjects with “Ellsbergian” behavior before and after we provide the arguments above in (2).

The full profile of preferences in (1).
The proportion of Ellsbergian behavior in (2) after various combinations of observing the arguments and conditional on whether the coin is physically flipped by experimenters or, instead, a mental device employed by the individual subject.

In an Ellsberg-inspired environment, we do two things:
1) We elicit preferences over acts in an environment where Ellsbergian behavior is inconsistent with most models of ambiguity aversion.
2) We elicit preferences over acts when subjects have been exposed to Raiffa's hedging argument.

In an Ellsberg-inspired environment, we do two things:
1) We elicit preferences over acts in an environment where Ellsbergian behavior is inconsistent with most models of ambiguity aversion.
2) We elicit preferences over acts when subjects have been exposed to Raiffa's hedging argument.

In both cases we use a risky urn and an uncertain urn, implemented as physical boxes filled with 100 ping pong balls each. The risky urn has 49 white balls. The uncertain urn has 100 balls, each of which is either green or yellow. One ball will be drawn from each urn. We identify the available acts with colors; each act generates a binary lottery that "wins" if the corresponding color is drawn. The acts are (white, green, yellow).

In (1), we do the following. Before eliciting preferences over (white, green yellow), we draw and display two balls, with replacement, from the uncertain urn. Before those draws, we elicit preferences using the strategy method for each of the four possible combinations of preliminary draws. Any profile that bets on white following preliminary draws of GY and YG is state-wise dominated by another act and is thus inconsistent with most models of ambiguity aversion.

In (2) we describe a coin toss, after which a subject can bet green if the coin lands heads and yellow if the coin lands tails. This mixed act generates a state-independent 50% chance of winning and so dominates the risky urn (betting white). We present, through videos, either one or two arguments, where one argument describes the hedge as dominating a choice for white, and the other argument observes that conditional on either heads or tails, the resulting lottery is still ambiguous.

We have in total 10 treatment groups, including the control group. The treatment groups are designed to test the following hypothesis:
(1) Subjects in 4 groups are asked to place their bets without being exposed to any arguments. In the other 6 groups, subjects are asked to choose after they watch the videos explaining the arguments.
(2) In the 4 groups in which subjects are asked to place their bets before observing any arguments, we will expose them to the arguments in a questionnaire and ask for their “advice for future participants”. We will be able to directly observe any changes within-subject.
(3) Subjects in 4 groups are asked to choose from the 3 options described above. In the other 6 groups, subjects have one more option: coin flip for green/yellow ball. If they choose this option, their bet will depend on a coin flip conduct by experimenters.
(4) We have two symmetric videos, one arguing in favor of hedging, and one arguing against hedging. In some treatments we only show the subjects one of the videos, and in some treatments we show them both videos in a different order.

All subjects will be recruited from the lab's registry. Subjects are randomly allocated to one of the treatments via the experimental session they sign up for.

Individual

No

na

350 undergraduate students

11 treatments, with the following sample sizes:

1) Observe preliminary draws: 30

For the remaining, the coding is as follows:
A=exposed to arguments before incentivized decision
N=not exposed to arguments before incentivized decision
"3"=coin flip by experimenter is not an option; the only options are white/green/yellow
"4"=a fourth option to bet according to an experimenter-implemented coin flip is available
V0=video describing virtual coin toss to implement lottery between green/yellow bets
V1=video with argument in favor of using coin toss
V2=video with argument against using coin toss

2) A3 V0,V1 sample size=10
3) A3 V0,V1,V2 sample size=10
4) A4 V1 sample size=10
5) A4 V2 sample size=10
6) A4 V1,V2 sample size=15
7) A4 V2,V1 sample size=15
8) N3 V0,V1 sample size=20
9) N3 V0,V1,V2 sample size=20
10) N4 V1,V2 sample size=10
11) N4 V2,V1 sample size=10