Ambiguity of scientific probability predictions and willingness-to-pay for climate change mitigation policies

Abstract

We estimate a smooth ambiguity preference function, wherein an individual faces multiple probability predictions of policy outcomes, and then empirically measure their willingness-to-pay for the policy, ambiguity attitude, and ambiguity premium. Climate change mitigation policy is used as the example. The estimation results reveal that most people have ambiguity-seeking attitudes, but that these attitudes are heterogeneous across individuals. People who are older, are university graduates, have higher income, or trust more in science show stronger ambiguity-seeking attitudes. Their willingness-to-pay can be underestimated if ambiguity is not considered. Moreover, individuals with stronger ambiguity-seeking attitudes support aggressive mitigation policies more strongly. Our estimation strategy is generally applicable to policy evaluations wherein policy outcomes are ambiguous.