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Diversification of Parameter Uncertainty

Defining an Ambiguous Risk. Case 1: Risk: 2% chance of hurricane next year.Case 2: Ambiguity: Expert 1 says 1% chance, Expert 2 says 3%. You think there is a 50% chance of each expert being correct.. Effect of Ambiguity on Premiums. Hogarth and Kunreuther (1989) surveyed actuaries. They found for risks of this size, the ratio of prices charged for ambiguous and standard risks was in the range 1.50-2.00..

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Diversification of Parameter Uncertainty

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