Preferences over the timing of uncertainty resolution under risk and ambiguity: an experimental approach

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This paper empirically analyses two types of preferences over the timing of resolution of uncertainty: preferences between early and late resolution and preferences between one-shot and gradual resolution of lotteries under risk and ambiguity. In an online experiment with students, we find significant differences between treatments: under risk, a majority of participants show a strict preference against gradual resolution of uncertainty, for low, medium and high ex-ante probabilities of receiving the prize of the lottery. Under ambiguity, most participants show a preference for gradual resolution of uncertainty for lotteries with a low-likelihood of winning, and an aversion towards it for medium and high likelihoods. Additionally, in both treatments we find subjects show strict preferences more frequently in the one-shot vs. gradual resolution dimension than in the early vs. late resolution dimension. Results from the experiment contribute to the literature about the empirical validity of ambiguity models, as different models prescribe different preferences over the timing of the resolution of uncertainty.

Timing of resolution of uncertainty, Decision-making under ambiguity, Empirical analysis of ambiguity models

Julen Zarate-Pina is a PhD candidate at the University College London (UCL) under the supervision of Antonio Cabrales and Terri Kneeland. He holds a MSc degree in Economics from Universitat Pompeu Fabra-BGSE and a BSc degree from the University of the Basque Country (UPV-EHU).

His thesis dissertation focuses on studying how individual decision-making is affected by changes in the level of uncertainty about the outcome of these decisions. He specifically studies how risky and ambiguous decisions lead to different choices in environments i) in which uncertainty is resolved over several periods or at different times, and ii) in which social identity is relevant to decision-makers.