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American Economic Review: Vol. 101 No. 2 (April 2011)

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The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation

Article Citation

Abdellaoui, Mohammed, Aurélien Baillon, Laetitia Placido, and Peter P. Wakker. 2011. "The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation." American Economic Review, 101(2): 695-723.

DOI: 10.1257/aer.101.2.695

Abstract

We often deal with uncertain events for which no probabilities are known. Several normative models have been proposed. Descriptive studies have usually been qualitative, or they estimated ambiguity aversion through one single number. This paper introduces the source method, a tractable method for quantitatively analyzing uncertainty empirically. The theoretical key is the distinction between different sources of uncertainty, within which subjective (choice-based) probabilities can still be defined. Source functions convert those subjective probabilities into willingness to bet. We apply our method in an experiment, where we do not commit to particular ambiguity attitudes but let the data speak. (JEL D81)

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Authors

Abdellaoui, Mohammed (HEC Paris and CNRS-GREGHEC, Jouy-en-Josas)
Baillon, Aurélien (Erasmus U Rotterdam)
Placido, Laetitia (HEC Paris and CNRS-GREGHEC, Jouy-en-Josas)
Wakker, Peter P. (Erasmus U Rotterdam)

JEL Classifications

D81: Criteria for Decision-Making under Risk and Uncertainty


American Economic Review



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