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

M. ABDELLAOUI, A. Baillon, L. Placido, P. Wakker

American Economic Review

avril 2011, vol. 101, n°2, pp.695-723

Départements : Economie et Sciences de la décision, GREGHEC (CNRS)

Mots clés : Knightian uncertainty, Ambiguity aversion, Belief measurement, Decision making, Home bias, Nonexpected utility, Probabilistic sophistication, Probabilities, Risk, Source of uncertainty, Subjective probability, Uncertainty

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.