1. An experimental comparison of investment decisions under risk and ambiguity, with and without trade Timothy R. Capon and John G. Tisdell

2. Overview Can interactions in market institutions eliminate the effect of ambiguity-aversion on individual decisions? Ambiguity is thought to be particularly important for understanding market behaviour e.g. Epstein and Wang (1994). We measured risk and ambiguity preferences and studied decisions under risk and ambiguity with and without trade. Market incentives and feedback did not eliminate the effect of ambiguity on individual decisions

3. Outline of this presentation Research questions and hypotheses Related research Methods Results Measured preferences Preferences and market transactions Treatment effects Summary

4. Research questions and hypotheses What is the relationship between decision-making under risk and ambiguity and market activity? A comparison of risk and ambiguity preferences with trade. The effect of risk and ambiguity on individual decisions. The effect of trade on individual decisions. Do market incentives and feedback reduce the effect of ambiguity on individual decisions?

5. Related research Previous experimental studies have examined whether the effect of ambiguity persists in markets and have examined the effects on prices and bids. Detecting the effect of ambiguity may depend on the type of market institution. The effect of ambiguity may be greater when a risky option is available for comparison.

6. Experiment design Without tradeWith trade Risk 37 Subjects 5 decision periods 4 market sessions (10 subjects in each) 5 market periods and decision periods Ambiguity 40 Subjects 5 decision periods 4 market sessions (10 subjects in each) 5 market periods and decision periods

7. Methods Part one Measurements of subjects’ preferences under conditions of risk and ambiguity Part two Investment decisions and markets

8. Measuring risk preferences and ambiguity preferences Iterative certainty equivalent procedure Paired lottery choices Certainty equivalent Willingness-to-accept for a lottery draw Varied probability choices

9. IterationLotteryExpected xixi xlxl xhxh utility 10200.500 20x1x1 0.250 3x1x1 200.750 40x2x2 0.125 5x2x2 x1x1 0.375 6x1x1 x3x3 0.625 7x3x3 200.875 Iterative certainty equivalence

10. Paired lottery choices Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

11. Risk-preferring Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

12. Risk-preferring Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

13. Risk-preferring Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

14. Risk-preferring Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

15. Risk-neutral Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

16. Risk-averse Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

17. Risk-averse Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

18. Risk-averse Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

19. Risk-averse Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

20. Risk-averse Option AEV(A)Option BEV(B)EV(B) - EV(A) 0/10 of $3.85, 10/10 of $0.100.10/10 of $2.00, 10/10 of $1.601.61.500 1/10 of $3.85, 9/10 of $0.100.4751/10 of $2.00, 9/10 of $1.601.641.165 2/10 of $3.85, 8/10 of $0.100.852/10 of $2.00, 8/10 of $1.601.680.830 3/10 of $3.85, 7/10 of $0.101.2253/10 of $2.00, 7/10 of $1.601.720.495 4/10 of $3.85, 6/10 of $0.101.64/10 of $2.00, 6/10 of $1.601.760.160 5/10 of $3.85, 5/10 of $0.101.9755/10 of $2.00, 5/10 of $1.601.8-0.175 6/10 of $3.85, 4/10 of $0.102.356/10 of $2.00, 4/10 of $1.601.84-0.510 7/10 of $3.85, 3/10 of $0.102.7257/10 of $2.00, 3/10 of $1.601.88-0.845 8/10 of $3.85, 2/10 of $0.103.18/10 of $2.00, 2/10 of $1.601.92-1.180 9/10 of $3.85, 1/10 of $0.103.4759/10 of $2.00, 1/10 of $1.601.96-1.515 10/10 of $3.85, 0/10 of $0.103.8510/10 of $2.00, 0/10 of $1.602-1.850

21. Willingness-To-Accept Container A $ ? Container B $ ? ?

22. Varying the probability Container AContainer B ?

23. Ambiguity-averse Container AContainer B ?

24. Ambiguity-averse Container AContainer B ?

25. Ambiguity-averse Container AContainer B ?

26. Ambiguity-averse Container AContainer B ?

27. Ambiguity-averse Container AContainer B ?

28. Ambiguity-neutral Container AContainer B ?

29. Ambiguity-preferring Container AContainer B ?

30. Ambiguity-preferring Container AContainer B ?

31. Ambiguity-preferring Container AContainer B ?

32. Ambiguity-preferring Container AContainer B ?

33. Ambiguity-preferring Container AContainer B ?

34. Methods used to study individual decisions and market trade Subjects were allocated 100 investment units at the start of each period. They decided how many units to allocate to either: Option A with a return of either 8 cents per unit of 0 cents per unit Option B with a certain return of 2 cents per unit. In market sessions, subjects could trade units in a multiple-unit double auction before making their decisions.

35. Summary of measurement results ProcedureMedianMean Standard deviation Paired lottery (gains)6.005.391.62 Paired lottery (losses)6.006.421.90 CE (gains, $20/$0)$10.00$10.16$3.81 CE (losses, $20/$0)$-9.40$-9.35$3.58 CE (gains, $8/$0)$3.92$3.78$1.49 ICE (gains, exponential)0.0496 0.3109 ICE (gains, power)0.9831.01550.1878 BDM (risk, $20/$0)$10.00$10.01$5.01 BDM (ambiguity, $20/$0)$8.00$8.95$5.68 BDM ratio1.201.360.49 Prob. Equiv. (ambiguity)42.00%40.76%14.46%

36. Summary of measurement results ProcedureMedianMean Standard deviation Paired lottery (gains)6.005.391.62 Paired lottery (losses)6.006.421.90 CE (gains, $20/$0)$10.00$10.16$3.81 CE (losses, $20/$0)$-9.40$-9.35$3.58 CE (gains, $8/$0)$3.92$3.78$1.49 ICE (gains, exponential)0.0496 0.3109 ICE (gains, power)0.9831.01550.1878 BDM (risk, $20/$0)$10.00$10.01$5.01 BDM (ambiguity, $20/$0)$8.00$8.95$5.68 BDM ratio1.201.360.49 Prob. Equiv. (ambiguity)42.00%40.76%14.46%

37. Summary of measurement results ProcedureMedianMean Standard deviation Paired lottery (gains)6.005.391.62 Paired lottery (losses)6.006.421.90 CE (gains, $20/$0)$10.00$10.16$3.81 CE (losses, $20/$0)$-9.40$-9.35$3.58 CE (gains, $8/$0)$3.92$3.78$1.49 ICE (gains, exponential)0.0496 0.3109 ICE (gains, power)0.9831.01550.1878 BDM (risk, $20/$0)$10.00$10.01$5.01 BDM (ambiguity, $20/$0)$8.00$8.95$5.68 BDM ratio1.201.360.49 Prob. Equiv. (ambiguity)42.00%40.76%14.46%

38. Summary of measurement results ProcedureMedianMean Standard deviation Paired lottery (gains)6.005.391.62 Paired lottery (losses)6.006.421.90 CE (gains, $20/$0)$10.00$10.16$3.81 CE (losses, $20/$0)$-9.40$-9.35$3.58 CE (gains, $8/$0)$3.92$3.78$1.49 ICE (gains, exponential)0.0496 0.3109 ICE (gains, power)0.9831.01550.1878 BDM (risk, $20/$0)$10.00$10.01$5.01 BDM (ambiguity, $20/$0)$8.00$8.95$5.68 BDM ratio1.201.360.49 Prob. Equiv. (ambiguity)42.00%40.76%14.46%

39. Correlations between measurements Pearson Correlations CE (gains, $20/$0) CE (losses, $20/$0) CE (gains, $8/$0) BDM (risk, $20/$0) ICE (gains, exponential) CE (gains, $8/$0) Correlation Coefficient.463(**)1 Significance.000 BDM (ambiguity,$20/ $0) Correlation Coefficient.359(**).320(*).731(**) Significance.004.011.000 Paired lotteries (gains) Correlation Coefficient -.298(*).268(*) Significance.018.034 Paired lotteries (losses) Correlation Coefficient.305(*) Significance.015 Probability Equivalence (ambiguity) Correlation Coefficient.249(*) Significance.049 BDM ratio Correlation Coefficient.268(*) Significance.033 ICE (gains, exponential) Correlation Coefficient.665(**).435(**)1 Significance.000 ICE (gains, power) Correlation Coefficient.745(**).444(**).922(**) Significance.000

40. Correlations between measurements Pearson Correlations CE (gains, $20/$0) CE (losses, $20/$0) CE (gains, $8/$0) BDM (risk, $20/$0) ICE (gains, exponential) CE (gains, $8/$0) Correlation Coefficient.463(**)1 Significance.000 BDM (ambiguity,$20/ $0) Correlation Coefficient.359(**).320(*).731(**) Significance.004.011.000 Paired lotteries (gains) Correlation Coefficient -.298(*).268(*) Significance.018.034 Paired lotteries (losses) Correlation Coefficient.305(*) Significance.015 Probability Equivalence (ambiguity) Correlation Coefficient.249(*) Significance.049 BDM ratio Correlation Coefficient.268(*) Significance.033 ICE (gains, exponential) Correlation Coefficient.665(**).435(**)1 Significance.000 ICE (gains, power) Correlation Coefficient.745(**).444(**).922(**) Significance.000

41. Correlations between measurements Pearson Correlations CE (gains, $20/$0) CE (losses, $20/$0) CE (gains, $8/$0) BDM (risk, $20/$0) ICE (gains, exponential) CE (gains, $8/$0) Correlation Coefficient.463(**)1 Significance.000 BDM (ambiguity,$20/ $0) Correlation Coefficient.359(**).320(*).731(**) Significance.004.011.000 Paired lotteries (gains) Correlation Coefficient -.298(*).268(*) Significance.018.034 Paired lotteries (losses) Correlation Coefficient.305(*) Significance.015 Probability Equivalence (ambiguity) Correlation Coefficient.249(*) Significance.049 BDM ratio Correlation Coefficient.268(*) Significance.033 ICE (gains, exponential) Correlation Coefficient.665(**).435(**)1 Significance.000 ICE (gains, power) Correlation Coefficient.745(**).444(**).922(**) Significance.000

42. ProcedurePreferringNeutralAverseOther Paired lotteries (gains)820287 Paired lotteries (losses)2315196 CE (gains, $20/$0)287271 CE (losses, $20/$0)373212 CE (gains, $8/$0)2111292 ICE (gains, exponential)282312 ICE (gains, power)332262 BDM (risk, $20/$0)2414250 BDM (ambiguity, $20/$0) 3312180 BDM ratio1022310 Prob. Equiv. (ambiguity)810441 Classification of subjects

43. ProcedurePreferringNeutralAverseOther Paired lotteries (gains)820287 Paired lotteries (losses)2315196 CE (gains, $20/$0)287271 CE (losses, $20/$0)373212 CE (gains, $8/$0)2111292 ICE (gains, exponential)282312 ICE (gains, power)332262 BDM (risk, $20/$0)2414250 BDM (ambiguity, $20/$0) 3312180 BDM ratio1022310 Prob. Equiv. (ambiguity)810441 Classification of subjects

44. ProcedurePreferringNeutralAverseOther Paired lotteries (gains)820287 Paired lotteries (losses)2315196 CE (gains, $20/$0)287271 CE (losses, $20/$0)373212 CE (gains, $8/$0)2111292 ICE (gains, exponential)282312 ICE (gains, power)332262 BDM (risk, $20/$0)2414250 BDM (ambiguity, $20/$0) 3312180 BDM ratio1022310 Prob. Equiv. (ambiguity)810441 Classification of subjects

45. ProcedurePreferringNeutralAverseOther Paired lotteries (gains)820287 Paired lotteries (losses)2315196 CE (gains, $20/$0)287271 CE (losses, $20/$0)373212 CE (gains, $8/$0)2111292 ICE (gains, exponential)282312 ICE (gains, power)332262 BDM (risk, $20/$0)2414250 BDM (ambiguity, $20/$0) 3312180 BDM ratio1022310 Prob. Equiv. (ambiguity)810441 Classification of subjects

46. ProcedurePreferringNeutralAverseOther Paired lotteries (gains)820287 Paired lotteries (losses)2315196 CE (gains, $20/$0)287271 CE (losses, $20/$0)373212 CE (gains, $8/$0)2111292 ICE (gains, exponential)282312 ICE (gains, power)332262 BDM (risk, $20/$0)2414250 BDM (ambiguity, $20/$0) 3312180 BDM ratio1022310 Prob. Equiv. (ambiguity)810441 Classification of subjects

47. Measured preferences and trade direction Procedure Right direction Wrong direction Same measure Missing measure Chi square Sig. (p value) CE (gains, $20/$0) 0.410.190.220.1725.258(**)0.000 CE (losses, $20/$0) 0.540.290.020.1525.801(**)0.000 CE (gains, $8/$0) 0.340.290.010.361.1080.292 ICE (gains, exponential)0.540.430.0203.889(*)0.049 ICE (gains, power)0.560.44004.738(*)0.029 BDM (risk, $20/$0) 0.620.330.05029.590(**)0.000 BDM (ambiguity,$20/$0) 0.620.350.02024.662(**)0.000 BDM ratio0.540.380.0909.197(*)0.002 Paired lotteries (gains) 0.270.290.160.290.140.709 Paired lotteries (losses) 0.30.160.120.4213.620(**)0.000 Prob. Equiv. (ambiguity)0.430.470.100.5850.444

48. Measured preferences and trade direction Procedure Right direction Wrong direction Same measure Missing measure Chi square Sig. (p value) CE (gains, $20/$0) 0.410.190.220.1725.258(**)0.000 CE (losses, $20/$0) 0.540.290.020.1525.801(**)0.000 CE (gains, $8/$0) 0.340.290.010.361.1080.292 ICE (gains, exponential)0.540.430.0203.889(*)0.049 ICE (gains, power)0.560.44004.738(*)0.029 BDM (risk, $20/$0) 0.620.330.05029.590(**)0.000 BDM (ambiguity,$20/$0) 0.620.350.02024.662(**)0.000 BDM ratio0.540.380.0909.197(*)0.002 Paired lotteries (gains) 0.270.290.160.290.140.709 Paired lotteries (losses) 0.30.160.120.4213.620(**)0.000 Prob. Equiv. (ambiguity)0.430.470.100.5850.444

49. Percentage of investment units allocated to the uncertain option TreatmentMeanStandard deviation Risk + Market85.718.8 Risk78.025.9 Ambiguity + Market76.828.4 Ambiguity67.826.7 Grand mean73.529.8

50. Percentage of investment units allocated to the uncertain option TreatmentMeanStandard deviation Risk + Market85.718.8 Risk78.025.9 Ambiguity + Market76.828.4 Ambiguity67.826.7 Grand mean73.529.8

51. Percentage of investment units allocated to the uncertain option TreatmentMeanStandard deviation Risk + Market85.718.8 Risk78.025.9 Ambiguity + Market76.828.4 Ambiguity67.826.7 Grand mean73.529.8

52. Percentage of investment units allocated to the uncertain option TreatmentMeanStandard deviation Risk + Market85.718.8 Risk78.025.9 Ambiguity + Market76.828.4 Ambiguity67.826.7 Grand mean73.529.8

53. Percentage of investment units allocated to the uncertain option TreatmentMeanStandard deviation Risk + Market85.718.8 Risk78.025.9 Ambiguity + Market76.828.4 Ambiguity67.826.7 Grand mean73.529.8

54. Analysis of treatment effects Effect of risk and ambiguity The mean proportion of investment units allocated to the uncertain option was significantly higher under risk than ambiguity (p = 0.009). Effect of trade The mean proportion of investment units allocated to the uncertain option was significantly higher with trade than without trade (p = 0.046).

55. Analysis of treatment effects Do market incentives and feedback reduce the effect of ambiguity on individual decisions? The hypothesized interaction between the market treatment and the information treatment was not significant (p = 0.918), although the difference in mean contributions was in the direction predicted.

56. Summary Although mean responses to the measurement procedures were close to risk-neutral, subjects exhibited a range of risk and ambiguity preferences. The direction of trade observed was consistent with many of the measurement procedures. An effect of information (risk vs ambiguity) and an effect of trade was observed. Market incentives and feedback did not eliminate the effect of ambiguity.

57. Acknowledgements I would like to acknowledge the support of my supervisor and co-author, John Tisdell. I would also like to acknowledge the support of the Australian Rivers Institute, the Griffith School of the Environment, and Griffith University. Questions?

58. Markets

59. Ellsberg Phenomenon Container AContainer B ?