Experimental evidence on valuation with multiple priors

Popular models for decision making under ambiguity assume that people use not one but multiple priors. This paper is a first attempt to experimentally elicit the min and the max of multiple priors directly. In an ambiguous scenario we measure a participant’s single prior, her min and max of multiple priors, and the valuation of an ambiguous asset with the same underlying states as the ambiguous scenario. We use the min and the max of multiple priors to directly test two popular multiple priors models: the maxmin model and the α maxmin model. We find more support for the α maxmin model: although people put about twice the weight on the minimum of multiple priors, they also consider the maximum. Furthermore, we indirectly elicit confidence weights over the whole set of multiple priors and test two additional models: variational preferences and the smooth model of ambiguity. Two particular versions of the variational preferences model explain less than the α maxmin but more than the maxmin model. Overall, the smooth model of ambiguity performs best among all models tested. ∗Department of Economics, Institute for Management Research, Radboud University. Thomas van Aquinostraat 5, 6525GD Nijmegen, The Netherlands & School of Economics and Management, Nanjing University of Science and Technology, China. †School of Economics, Utrecht University. Kriekenpitplein 21-22, 3584EC Utrecht, The Netherlands & Department of Economics, Institute for Management Research, Radboud University. Thomas van Aquinostraat 5, 6525GD Nijmegen, The Netherlands ‡We gratefully acknowledge helpful comments from (in alphabetical order) Marco Della Seta, Ariel Rubinstein, Stefan Trautmann, Gijs van de Kuilen, Peter Wakker, an anynomous referee, as well as conference participants at the Experimental Finance Conference 2013 in Tilburg, 28th European Economic Association meeting in Gothenburg, and seminar participants at the Radboud University Nijmegen and Vienna University.