Coming Soon: Ambiguity Attitudes

Abstract

We represent preferences that exhibit absolute or relative attitudes towards ambiguity without presuming convexity (Schmeidler, 1989). These assumptions are in line with the experimental evidence by Baillon and Placido (2011b, 2019), which indicates that (i) individuals tend to become less averse to ambiguity as their financial status improves, and (ii) aversion to ambiguity does not necessarily entail convex preferences. Our representation admits a similar optimism-pessimism representation as that in Chandrasekher, Frick, and Iijima (2022). We provide a novel interpretation of this representation which illustrates a connection with moral hazard. Finally, we introduce a novel parametric specification based on a generalization of the smooth ambiguity model of Klibanoff et al. (2005).