Document Type
Working Paper
Date of this Version
2-7-2019
Abstract
Using an incentivized survey and a representative sample of investors, we elicit ambiguity attitudes toward a familiar company stock, a local stock index, a foreign stock index, and a crypto currency. We separately estimate ambiguity aversion (ambiguity preferences) and perceived ambiguity levels (perceptions about ambiguity), while controlling for unknown likelihood beliefs. We show that ambiguity aversion is highly correlated across different assets and can be summarized by a single underlying factor. By contrast, individuals’ perceived ambiguity levels differ depending on the type of asset and cannot be summarized by a single underlying factor. Perceived ambiguity is mitigated by financial literacy and education, while the preference component is correlated with risk aversion. Perceived ambiguity proves to be related to actual investment choices, validating our measure. Finally, our results imply that policies enhancing financial literacy and knowledge of financial markets can help stimulate equity market participation and reduce inequality, as these reduce peoples’ perceived levels of ambiguity about financial assets.
Keywords
Ambiguity, decision-making under uncertainty, investment, preferences, financial literacy
JEL Code
D81, C93, D14
Working Paper Number
WP2019-02
Date Posted: 12 February 2019
Comments
This project received funding from NETSPAR, Wharton School’s Pension Research Council/Boettner Center, and Labex Ecodex. The authors thank Stephen Dimmock and Peter Wakker for helpful comments. The content is solely the responsibility of the authors and does not represent the official views of the TIAA Institute, the Wharton School’s Pension Research Council/Boettner Center, or the individuals named above.