Signaling probabilities in ambiguity: who reacts to vague news?

Vinogradov, D. and Makhlouf, Y. ORCID: 0000-0001-7737-3153, 2020. Signaling probabilities in ambiguity: who reacts to vague news? Theory and Decision. ISSN 0040-5833 (Forthcoming)

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Ambiguity affects decisions of people who exhibit a distaste of and require a premium for dealing with it. Do ambiguity-neutral subjects completely disregard ambiguity and respond to any vague news? We couple decision-making in ambiguity with a preliminary information processing stage, where news is used to test prior beliefs and, possibly but not necessarily, update them. All decision-makers, including ambiguity-neutral, recognize and account for ambiguity at this stage; higher confidence makes ambiguity-neutral subjects less susceptible to vague news. In a two-color Ellsberg experiment with imprecise signals about the unknown probability of success they are less likely to respond to signals; the difference between them and non-neutral to ambiguity subjects vanishes for high precision signals. Less than 60% subjects choose the ambiguous urn, even for high communicated probabilities of success, suggesting many participants, especially ambiguity-neutral, discard vague news at the information processing stage. JEL: C90, D01, D81, as well as seminar participants at ETH-Zürich, University of Essex, University of Glasgow and University of Hamburg, and participants of iCare conference at HSE in Perm and JE on Ambiguity and Strategic Interactions at the University of Grenoble for helpful comments, suggestions and encouragement. All remaining errors are ours.

Item Type: Journal article
Publication Title: Theory and Decision
Creators: Vinogradov, D. and Makhlouf, Y.
Publisher: Springer Verlag
Date: 17 May 2020
ISSN: 0040-5833
Divisions: Schools > Nottingham Business School
Depositing User: Linda Sullivan
Date Added: 29 May 2020 08:20
Last Modified: 29 May 2020 10:39

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