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.