Attitudes Toward and Perceptions of the Ambiguity of House and Stock Prices

Abstract

This study estimates individuals' attitudes toward and perceptions of ambiguity of house prices and stock prices, using experiment data from the Rand American Life Panel (ALP) survey. We estimate two important parameters in multiple prior models and α-MaxMin ambiguity preferences: the degree of ambiguity aversion and the degree of confidence in the reference prior distribution of future prices, this being a measurement of the perceived level of ambiguity. Regarding attitudes, we find that individuals are slightly ambiguity seeking with regard to house prices while they are slightly ambiguity averse with regard to stock prices. Their degree of confidence in the reference distribution for stocks is lower than for house prices. We also find that increased state-level house price volatility during the past year and growth of house price in the past three years increase perceived ambiguity. Moreover, ambiguity matters in that ambiguity-averse renters are less likely to buy a house. Correspondingly, ambiguity-averse stock investors tend to have less stock holdings.

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