Comment on Halevy (2007) 'Ellsberg Revisited: An Experimental Study'

Abstract

Halevy (2007) experimentally tests the prediction of the Recursive Non-Expected Utility (RNEU) model that there is a positive correlation between degree of ambiguity aversion and degree of preference on reduction of compound lotteries ROCL. Halevy (2007) claimed that the experimental result supports the RNEU. In this study, we use Halevy’s data and conduct further analysis based on subject’s ambiguity attitude types: ambiguity neutral, ambiguity averse, and ambiguity loving. We find striking different results. First, there is no significant relationship between degree of preference on ROCL and degree of ambiguity aversion. Second, subjects who prefer simple lotteries are not more likely to be ambiguity averse than subjects who prefer compound lotteries. Third, ambiguity averse subjects are not more likely to prefer simple lottery than those who are ambiguity seeking. In sum, there is no evidence that ambiguity aversion can be well explained by preference on reduction of compound lotteries.