Wharton Pension Research Council Working Papers

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We test the relation between ambiguity aversion and five household portfolio choice puzzles: non-participation in equities, low allocations to equity, home-bias, own-company stock ownership, and portfolio under-diversification. In a representative US household survey, we measure ambiguity preferences using custom-designed questions based on Ellsberg urns. As theory predicts, ambiguity aversion is negatively associated with stock market participation, the fraction of financial assets in stocks, and foreign stock ownership, but it is positively related to own-company stock ownership. Conditional on stock ownership, ambiguity aversion is related to portfolio under-diversification, and during the financial crisis, ambiguity-averse respondents were more likely to sell stocks.


Ambiguity aversion, stock market participation, household portfolio puzzles, home-bias, own-company stock puzzle, portfolio under-diversification, household finance.

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The content is solely the responsibility of the authors and does not necessarily represent the official views of the National Institute of Aging, the National Institutes of Health, or any of the other institutions providing funding for this study or with which the authors are affiliated.


This paper is part of the NBER’s Research Program on the Economics of Aging and the Working Group on Household portfolios. The authors gratefully acknowledge support from Netspar, the National Institute on Aging, P30 AG-012836-18, the Pension Research Council/Boettner Center for Pensions and Retirement Research, and National Institutes of Health—National Institute of Child Health and Development Population Research Infrastructure Program R24 HD-044964-9, all at the University of Pennsylvania, and the ALP teams at RAND and the University of Southern California, as well as the Wharton Behavioral Labs. We thank Jawad Addoum, Sahil Bajaj, Laurent Calvet, Hector Calvo-Pardo, Andrew Caplin, Carlos Cueva, Nicola Gennaioli, Stefano Giglio, Luigi Guiso, George Korniotis, Debrah Meloso, Nicola Pavoni, Arno Riedl, David Schreindorfer, Noah Stoffman, Stefan Trautmann, Matijn van den Assem, Peter Wakker, and participants at the American Economic Association, Ambiguity and Robustness in Macroeconomics and Finance, European Economic Association, European Finance Association, European Household Finance, Experimental Finance, Financial Intermediation Research Society, Mitsui Finance Symposium, Netspar Workshop, SFS Cavalcade, and Western Finance Association conferences for helpful comments, and Tania Gutsche, Arie Kapteyn, Bart Orriens, and Bas Weerman for assistance with the survey. Yong Yu provided outstanding programming assistance.

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Date Posted: 28 June 2019