The study of behavior under uncertainty is one of the central areas in economics. One can distinguish between two types of uncertainty: objective and subjective. Objective uncertainty is present when there are clear objective probabilities with which different outcomes occur, e.g. when one flips a fair coin. Subjective uncertainty is present when there are no clear objective probabilities with which the different outcomes occur, e.g. when one invests in the stock market. Even though mainstream economic theory makes no distinction between objective and subjective uncertainty, this distinction seems to play an important role for behavior. In particular people seem to dislike subjective uncertainty -- in economic terminology they are ambiguity averse.
The aim of the proposed research is to investigate experimentally to what extent people are ambiguity-averse when the subjective uncertainty arises in the context of a game. Our experimental game is a one-shot decision situation in which payoffs depends not only on the players' decisions but also on the decisions of other people. As players do not know in advance what the decision of the other persons are, they face uncertainty regarding what the other persons will do and hence regarding their own payoff. This uncertainty is subjective since players are not told how likely it is that the other persons will make each decision. Although there are many experimental studies on ambiguity aversion in individual decision making, there is a lack of such studies in the context of games. Given that game theory (which plays a central role in modern economics) ignores ambiguity aversion, it is important to investigate to what extent ambiguity aversion does have an impact on behavior in games. Such investigation could give us a better understanding of the current limitations of game theory and it may provide motivation for future efforts to incorporate ambiguity aversion into game theory.
