This article presents the results of a survey designed to test, with economically sophisticated participants, Ellsberg’s ambiguity aversion hypothesis, and Smithson’s conflict aversion hypothesis. Based on an original sample of 78 professional actuaries (all members of the French Institute of Actuaries), this article provides empirical evidence that ambiguity (i.e. uncertainty about the probability) affect insurers’ decision on pricing insurance. It first reveals that premiums are significantly higher for risks when there is ambiguity regarding the probability of the loss. Second, it (...) shows that insurers are sensitive to sources of ambiguity. The participants indeed, charged a higher premium when ambiguity came from conflict and disagreement regarding the probability of the loss than when ambiguity came from imprecision (imprecise forecast about the probability of the loss). This research thus documents the presence of both ambiguity aversion and conflict aversion in the field of insurance, and discuses economic and psychological rationales for the observed behaviours. (shrink)

The Ellsberg Paradox documented the aversion to ambiguity in the probability of winning a prize. Using an original sample of 266 business owners and managers facing risks from climate change, this paper documents the presence of departures from rationality in both directions. Both ambiguity-seeking behavior and ambiguity-averse behavior are evident. People exhibit ‘fear’ effects of ambiguity for small probabilities of suffering a loss and ‘hope’ effects for large probabilities. Estimates of the crossover point from ambiguity aversion (fear) to ambiguity seeking (...) (hope) place this value between 0.3 and 0.7 for the risk per decade lotteries considered, with empirical estimates indicating a crossover mean risk of about 0.5. Attitudes toward the degree of ambiguity also reverse at the crossover point. (shrink)