Policy Makers React to Ambiguity Like Other Humans Do
ECONOMICS |

Policy Makers React to Ambiguity Like Other Humans Do

RESEARCHERS, JOURNALISTS OR STUDENTS: THE KNOWN IS BETTER THAN THE UNKNOWN FOR EVERYONE, AS DEMONSTRATED BY AN EXPERIMENT BY VALENTINA BOSETTI

When faced with ambiguity, the elites who develop responses to climate change do not act rationally. Like many of us, they are ambiguity adverse. Behavioral traits and preferences of climate policymakers are the focus of a field experiment run by Valentina Bosetti and Loïc Berger during COP 21, the Paris climate conference in 2015.
 
Negotiators, researchers, journalists and representatives of the private sector originating from 52 countries were confronted with urns containing red and black balls. Each urn described a different type of uncertainty: the number of red and black balls was known or unknown or randomly determined. Participants facing pairs of urns were asked to pick one of two, with a payoff for a correct bet. The ambiguity derived not only from the uncertainty about the occurrence of random events, but also from the lack of information. This is the typical situation in which climate policymakers are called upon to make decisions based on experts’ conflicting evaluations.
 
“We ran a similar experiment on university students at the Bocconi Experimental Laboratory in the Social Sciences”, Valentina Bosetti says. Policymakers behaved just like students, proving to be consistently ambiguity adverse: they preferred situations where the probabilities were known to situations where they were unknown. “Their preferences were not due to an irrational behavior or to the inability to perform probability computations, but to intrinsic preferences in the face of unknown probabilities. Our experiment is the first step in understanding the ambiguity aversion of social planners”.

Read more about this topic:
Massimo Marinacci. Understanding Risk in Companies and Our Lives
The Real Trouble Starts When We Think We Can Calculate Everything
Corporate Governance Is not Safe from Black Swans
A Bridge Where Decision Theory Meets Risk Analysis
No Economic System Is Safe. Shocks Travel Quickly and Unexpectedly
When International Trade Increases the Chance of Conflict
With the Monte Carlo simulations, an epochal revolution in the probabilistic risk assessment of business plans has arrived
How to Make Your Non-performing Loans Harmless
New Sanitation System Can Half Healthcare Associated Infections and Reduce Related Costs by 75%

by Claudio Todesco

News

All News
  • Economics Research, Bocconi in the European Top 5

    In the Tilburg University ranking of the best universities for scientific performance in economics research, Bocconi is 4th in Europe, 1st in continental Europe, and 18th in the world  

  • Lockdown Measures Are Not the Only Things Keeping Us at Home

    Two Bocconi MSc students, in a team with two Oxford PhD students, had their paper published in two prestigious outlets. Observing mobility data from mobile devices, they found that people in the US often distanced themselves before official measures were imposed in counties with high education, high trust in science and high income  

Seminars

  May 2020  
Mon Tue Wed Thu Fri Sat Sun
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30 31

Seminars      

All Seminars
  • Imperfect Macroeconomic Expectations: Evidence and Theory
    Macroeconomics

    Marios Angeletos (MIT) Paper

    Webinar

  • The Commission's proposals for the Multiannual Financial Framework and the Recovery Instrument
    The EU Response to the Covid Crisis

    Chair Eleanor Spaventa, Bocconi University Speakers Mario Monti, President, Bocconi University; Catherine De Vries, Bocconi University; Guido Tabellini, Bocconi University To register, please contact fulvia.ristuccia@unibocconi.it

    Webinar