Influence of imprecise information on risk and ambiguity preferences: experimental evidence

Abstract

This study examines individual risk and ambiguity preferences under three different sources of imprecise information-induced ambiguity, namely, probability imprecision, outcome imprecision, and conflicting information. Using a within-subject lab experiment design, the study examines the extent to which gender and degree of perceived ambiguity explain individual preferences for risky and ambiguous investment choices. The analysis confirms existing literature findings of individuals showing an aversion toward ambiguous investment choices in comparison to risky choices. However, the magnitude of ambiguity aversion varied with respect to the different sources of ambiguity. An individual's degree of perceived ambiguity measured through matching probability had a significant influence on individual preferences under all sources of ambiguity. Gender had a significant influence on individual preferences only under conflicting information-induced ambiguity. The study demonstrates the relevance of examining determinants of ambiguity preferences contingent upon the source of information-induced ambiguity.