Preference Reversals Under Ambiguity

Preference reversals have been widely studied using risky or riskless gambles. However, little is known about preference reversals under ambiguity. We asked subjects to make a binary choice between ambiguous P-bets and ambiguous $-bets and elicited their willingness to accept. Subjects then performed the same two tasks with risky bets, where the probability of winning for a given risky bet is the center of the probability interval of the corresponding ambiguous bet. Preference reversals are not only replicated under ambiguity but are even stronger than those under risk. This is due to higher elicited prices for the $-bet and lower elicited prices for the P-bet under ambiguity than under risk. We explain this result by the shape of the probability-weighting function for different levels of uncertainty and for different elicitation modes. JEL classification: D81, D03, C91.