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Estimating Aversion to Uncertainty

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It is intuitive that decision-makers might have attitudes towards uncertainty just as theymight have attitudes towards risk. However, it is only recently that this intuitive notion has beenformalized and axiomatically characterized. We estimate the extent of uncertainty aversion in amanner that is parsimonious and consistent with theory. We demonstrate that one can jointlyestimate attitudes towards uncertainty, attitudes towards risk, and subjective probabilities in arigorous manner. Our structural econometric model constructively demonstrates the theoreticalclaims that it is possible to define uncertainty aversion in an empirically tractable manner. Ourresults show that attitudes towards risk and uncertainty can be different, qualitatively andquantitatively, and that allowing for these differences can have significant effects on inferences aboutsubjective probabilities.

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Steffen Andersen, John Fountain, Glenn W. Harrison, E. Elisabet Rutström

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