Coherent-ambiguity aversion is defined within the smooth-ambiguity model as the combination of choice-ambiguity and value-ambiguity aversion. Five ambiguous decision tasks are analyzed theoretically, where an individual faces two-stage lotteries with binomial, uniform, or unknown second-order probabilities. Theoretical predictions are then tested through a 10-task experiment. In tasks 1–5, risk aversion is elicited through both a portfolio choice method and a BDM mechanism. In tasks 6–10, choice-ambiguity aversion is elicited through the portfolio choice method, while value-ambiguity aversion comes about through the (...) BDM mechanism. The behavior of over 75 % of classified subjects is in line with the KMM model in all tasks 6–10, independent of their degree of risk aversion. Furthermore, the percentage of coherent-ambiguity-averse subjects is lower in the binomial than in the uniform and in the unknown treatments, with only the latter difference being significant. The most part of coherent-ambiguity-loving subjects show a high risk aversion. (shrink)

We analyze the results from three different risk attitude elicitation methods. First, the broadly used test by Holt and Laury, HL, second, the lottery-panel task by Sabater-Grande and Georgantzis, SG, and third, responses to a survey question on self-assessment of general attitude towards risk. The first and the second task are implemented with real monetary incentives, while the third concerns all domains in life in general. Like in previous studies, the correlation of decisions across tasks is low and usually statistically (...) non-significant. However, when we consider only subjects whose behavior across the panels of the SG task is compatible with constant relative risk aversion, the correlation between HL and self-assessed risk attitude becomes significant. Furthermore, the correlation between HL and SG also increases for CRRA-compatible subjects, although it remains statistically non-significant. (shrink)

In this article, ambiguity attitude is measured through the maximum price a decision maker is willing to pay to know the probability of an event. Two problems are examined in which the decision maker faces an act: in one case, buying information implies playing a lottery, while, in the other case, buying information gives also the option to avoid playing the lottery. In both decision settings, relying on the Choquet expected utility model, we study how the decision maker’s risk and (...) ambiguity attitudes affect the reservation price for ambiguity resolution. These effects are analyzed for different levels of ambiguity of the act. Operating instructions for the elicitation of the reservation price for ambiguity resolution in an experimental setting are provided at the end of the article. (shrink)

We compare the performance of liability rules for managing environmental disasters when third parties are harmed and cannot always be compensated. A firm can invest in safety to reduce the likelihood of accidents. The firm’s investment is unobservable to authorities. The presence of externalities and asymmetric information call for public intervention in order to define rules aimed at increasing prevention. We determine the investments in safety under No Liability, Strict Liability, and Negligence rules, and compare these to the first best. (...) Additionally, we investigate how the ability of the firm to fully cover potential damage affects the firm’s behavior. An experiment tests the theoretical predictions. In line with theory, Strict Liability and Negligence are equally effective; both perform better than No Liability; investment in safety is not sensitive to the ability of the firm to compensate potential victims. In contrast with theory, however, prevention rates absent liability are much higher and liability is much less effective. (shrink)

We use a controlled laboratory experiment to study firm’s protection against potential technological damages. The probability of a catastrophic event is known, and the firm’s costly investment in safety reduces it. The firm can also buy an insurance with full or partial refund against the consequences of the catastrophic event, which ultimately reduces the variance of the firm’s investment-in-safety lottery. The firm makes these two choices simultaneously, after observing the insurance contract proposed by an insurer who chooses this contract within (...) a set of premium–deductible combinations. We parametrize the insurer–firm game such that a risk-neutral insurer maximizes his expected profit by offering an actuarially fair contract with full insurance; a risk-neutral firm is indifferent between investing in safety and accepting a fair insurance contract. We aim at understanding whether investment in safety and insurance are substitutes or complements in the firm’s risk management of catastrophic events. In line with our predictions, the experimental results suggest that they are substitutes rather than complements: the firm’s investment in safety measures is affected by the insurer’s proposed contract, the latter usually involving only partial insurance. (shrink)

This paper investigates the influence that social ties can have on behavior. After defining the concept of social ties that we consider, we introduce an original model of social ties. The impact of such ties on social preferences is studied in a coordination game with outside option. We provide a detailed game theoretical analysis of this game while considering various types of players, i.e., self-interest maximizing, inequity averse, and fair agents. In addition to these approaches that require strategic reasoning in (...) order to reach some equilibrium, we also present an alternative hypothesis that relies on the concept of team reasoning. After having discussed the differences between the latter and our model of social ties, we show how an experiment can be designed so as to discriminate among the models presented in the paper. (shrink)