Abstract:
We measure ambiguity attitudes for a representative sample of U.S. households using a customdesigned
module in the American Life Panel, and then we test the relation between ambiguity
attitudes and economic behavior. Results show that ambiguity attitudes vary across people:
about half are ambiguity averse, 10% ambiguity neutral, and 40% ambiguity seeking. Withinsubject
attitudes are sensitive to the likelihood of ambiguous events: subjects overweight lowlikelihood
events and underweight high-likelihood events, which we call ‘ambiguity-likelihood
insensitivity.’ We test whether ambiguity attitudes can explain peoples’ decisions regarding
equity market participation, asset allocation, retirement planning efforts, and insurance
ownership. Results are largely consistent with theoretical predictions: higher ambiguity aversion
is associated with less equity market participation, lower portfolio allocations to equities, and
more retirement planning. High ambiguity-likelihood insensitivity is associated with a higher
probability of owning insurance.