Ambiguity Attitudes and Retirement Preparedness

Abstract: 
This project will evaluate whether and how ambiguity or uncertainty aversion influences economic decision making. Risk is different from ambiguity, where the former refers to stochastic events with known outcome probabilities, and the latter refers to stochastic events where the probabilities are unknown. Ellsberg (1961) suggested that, on average, people are averse to uncertainty, strongly preferring risks with known probabilities over those with uncertain likelihoods. The current project will measure and assess the effects of ambiguity aversion on economic decisions using a purpose-built survey module to be implemented in the nationallyrepresentative American Life Panel. Ambiguity attitudes will be elicited by varying the degree of ambiguity presented to each respondent in an internet survey, depending on how he responds to an initial set of questions. Next, this project will evaluate whether respondents who indicate they are more averse to ambiguity are also those who plan and save more for retirement, are more financially literate, invest more in their health, learn more about their future pension benefits, invest less in stocks, and otherwise protect themselves against uncertainty.
Funded By: 
PARC
Award Dates: 
July 1, 2011 - June 30, 2012
PARC Grant Year: 
Year 18