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”.

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