Séminaire

Learning under ambiguity:An experiment using initial public offerings on a stock market

Aurélien Baillon (Erasmus University Rotterdam)

14 mars 2013, 15h30–17h00

Toulouse

Salle MF 323

BEE Seminar

Résumé

This paper studies the effect of learning new information on ambiguity attitudes. We decompose ambiguity attitude into two parts, pessimism (capturing ambiguity aversion) and likelihood insensitivity and introduce a simple method to measure these two parts empirically. We study the effect of learning in an experiment using initial public offerings (IPOs) on the New York Stock Exchange. IPOs offer the possibility to study the effect of new information in a natural decision context for which no prior information is available. We found that pessimism was largely unaffected by the arrival of new information, but likelihood insensitivity dropped substantially. The receipt of information made subjects move in the direction of expected utility, but significant deviations from expected utility persisted. Subjective probabilities appeared to be well-calibrated, once they were corrected for ambiguity attitude. Allowing for utility curvature affected the conclusions only marginally, suggesting that decision under uncertainty was driven primarily by the distortion of beliefs due to ambiguity.