Estimating Ambinguity Aversion in a Portfolio Choice Experiment Estimating Ambiguity Aversion in a Portfolio Choice Experiment *

We report a laboratory experiment that enables us to estimate parametric models of ambiguity aversion at the level of the individual subject. We use two main specifications, a “kinked” specification that nests Maxmin Expected Utility, Choquet Expected Utility, αMaxmin Expected Utility, and Contraction Expected Utility and a “smooth” specification that nests the various theories referred to collectively as Recursive Expected Utility. Our subjects solved a series of portfolio-choice problems. The assets are Arrow securities corresponding to three states of nature, where the probability of one state is known and the remaining two are ambiguous. The sample exhibits ∗The experiment was conducted at the Experimental Social Science Laboratory (Xlab) at the University of California, Berkeley. We thank Raymond Fisman for detailed comments and suggestions. We are also grateful to Yoram Halevy, Tom Palfrey, Chris Shannon, and Bill Zame for helpful discussions. This paper has also benefited from suggestions by the participants of seminars at Brown, UC Berkeley, UCL, UCLA, and UCSD. We acknowledge the National Science Foundation Grant No. SES-0550224 (Ahn) and SES0617955 (Gale and Kariv), and the Coleman Fung Risk Management Research Center (OpenLink Fund) at UC Berkeley (Kariv) for financial support. †Department of Economics, University of California, Berkeley, 508-1 Evans Hall # 3880, Berkeley, CA 94720 (E-mail: [email protected], URL: http://www.econ.berkeley.edu/~dahn/). ‡Department of Economics, University College London, Gower Street, London WC1E 6BT, UK (Email: [email protected], URL: http://www.homepages.ucl.ac.uk/~uctpsc0). §Department of Economics, New York University, 19 W. 4th Street, New York, NY, 10012 (E-mail: [email protected], URL: http://www.econ.nyu.edu/user/galed). ¶Department of Economics, University of California, Berkeley, 508-1 Evans Hall # 3880, Berkeley, CA 94720 (E-mail: [email protected], URL: http://econ.berkeley.edu/~kariv/).