COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 1774

Revealed Preferences for Risk and Ambiguity

Donald Brown, Chandra Erdman, Kirsten Ling and Laurie Santos

November 2010

We replicate the essentials of the Huettel et al. (2006) experiment on choice under uncertainty with 30 Yale undergraduates, where subjects make 200 pair-wise choices between risky and ambiguous lotteries. Inferences about the independence of economic preferences for risk and ambiguity are derived from estimation of a mixed logit model, where the choice probabilities are functions of two random effects: the proxies for risk-aversion and ambiguity-aversion.

Our principal empirical finding is that we cannot reject the null hypothesis that risk and ambiguity are independent in economic choice under uncertainty. This finding is consistent with the hypothesized independence of the neural mechanisms governing economic choices under risk and ambiguity, suggested by the double dissociation-fMRI study reported in Huettel et al.

JEL Classification Numbers: C14, C25, C91, D03, D81

Keywords: Mixed logit, Risk-aversion, Ambiguity-aversion