The Role of Probability Interval and Emotional Parameters

We study risk and ambiguity aversion among experimental subjects, focusing on understanding the role of the degree of ambiguity (as measured by the probability interval) and selected emotional parameters on attitudes towards ambiguity. In contrast to the general findings in the literature that people usually tend to take gambles with known probability over equivalent gambles with ambiguous probability, we find that student subjects are ambiguity neutral when faced with a relatively narrow probability interval but ambiguity averse in relatively wider intervals. We also find that less trusting and more pessimistic individuals tend to avoid ambiguity, while a measure of subject happiness has no impact on ambiguity aversion. JEL classification: