Randomization advice and ambiguity aversion

Abstract

We design and implement lab experiments to evaluate the normative appeal of behavior arising from models of ambiguity-averse preferences. We report two main empirical findings. First, we demonstrate that behavior reflects an incomplete understanding of the problem, providing evidence that subjects do not act on the basis of preferences alone. Second, additional clarification of the decision making environment pushes subjects’ choices in the direction of ambiguity aversion models, regardless of whether or not the choices are also consistent with subjective expected utility, supporting the position that subjects find such behavior normatively appealing.