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A New Definition of Comparative Ambiguity Attitude

Decision Sciences

HEC Paris Ph.D. student Fan Wang unveiled a new definition of ambiguity attitude during the latest D-TEA conference on decision making, organized by HEC Paris Professor Itzhak Gilboa. This was acknowledged and congratulated by decision-theory expert Peter Wakker. In this interview, Mr Wang explains what does he brings both to the field of decision sciences and to practice.

a man and a woman question themselves - deagreez

©deagreez on AdobeStock

Can you explain your field of research?

Recently, I work in the theoretical side of decision under uncertainty, focusing on building formal frameworks and proposing elicitation methods that I think are useful for people to gain a deeper understanding of the topic. The other side of the field tries to empirically uncover patterns of behaviors that people exhibit under uncertainty.

 


How do you define ambiguity attitude and risk attitude?

Risk is the type of uncertainty that is precisely quantifiable, like the chance of heads when tossing a fair coin (which is 50%). In comparison, ambiguity is un-quantifiable uncertainty, like the chance of success of a truly novel business idea. Risk attitude and ambiguity attitude are usually measured in terms of how much the decision maker evaluates risky bets and ambiguity bets, respectively. The decision maker with lower evaluations is deemed more risk (and ambiguity) averse. 

 

Risk is the type of uncertainty that is precisely quantifiable, like the chance of heads when tossing a fair coin, while ambiguity is un-quantifiable uncertainty, like the chance of success of a truly novel business idea.

 

 

stick drawing of someone tossing a coin - Zdenek Sasek on AdobeStock

 

What do you bring to the field of decision sciences?

Let’s go back to the example of a novel business idea, and suppose that we want to compare the ambiguity attitudes of two venture capitalists (VC) who are interested in financing the idea. Again, the standard method suggests comparing their monetary evaluations of the idea. This is reasonable, but it has been shown that this makes sense only if the two VCs have the same risk attitude, that is, if the chance of success of the idea were precisely quantifiable, the two VCs must have the same evaluation. This strong requirement renders comparing ambiguity attitudes practically impossible.

 

I propose a method which in our example amounts to comparing the two VCs’ subjective estimates of the idea's chance of success.

 

In my research, I propose a method which in our example amounts to comparing the two VCs’ subjective estimates of the idea's chance of success. And I formally show that this method does not require a common risk attitude. Therefore, my paper establishes a separation between ambiguity attitude and risk attitude, which provides decision-theoretic support to many applications and empirical tests.

 

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