DP13518 Ambiguity Attitudes about Investments: Evidence from the Field

Author(s): Kanin Anantanasuwong, Roy Kouwenberg, Olivia S Mitchell, Kim Peijnenburg
Publication Date: February 2019
Date Revised: February 2019
Keyword(s): Ambiguity, decision-making under uncertainty, financial literacy, investment, preferences
JEL(s): C93, D14, D81
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13518

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.