Working Paper: CEPR ID: DP13518
Authors: Kanin Anantanasuwong; Roy Kouwenberg; Olivia S. Mitchell; Kim Peijnenburg
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 Codes: D81; C93; D14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ambiguity aversion (D81) | investment choices (G11) |
| financial literacy (G53) | perceived ambiguity (D80) |
| perceived ambiguity (D80) | investment choices (G11) |
| ambiguity aversion (D81) | perceived ambiguity (D80) |
| asset type (H82) | perceived ambiguity (D80) |
| ambiguity aversion (one asset) (D81) | ambiguity aversion (other assets) (D81) |