Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248289 
Year of Publication: 
2020
Series/Report no.: 
CeDEx Discussion Paper Series No. 2020-17
Publisher: 
The University of Nottingham, Centre for Decision Research and Experimental Economics (CeDEx), Nottingham
Abstract: 
Accounting for ambiguity aversion in dynamic decisions generally implies that either dynamic consistency or consequentialism must be given up. To gain insight into which of these principles better describes people's preferences we tested them using a variation of Ellsberg's three-color urn experiment. Subjects were asked to make a choice both before and after they received a signal. We found that most ambiguity neutral subjects satisfied both dynamic consistency and consequentialism and behaved consistent with subjective expected utility with Bayesian updating. The majority of ambiguity averse subjects violated at least one of the principles and they were more likely to satisfy consequentialism than dynamic consistency.
Subjects: 
ambiguity
three-color Ellsberg paradox
consequentialism
dynamic consistency
JEL: 
C72
D81
Document Type: 
Working Paper

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