Does Exposure to Unawareness Affect Risk Preferences? A Preliminary Result

33 Pages Posted: 2 May 2017

See all articles by Wenjun Ma

Wenjun Ma

Shenzhen University

Burkhard C. Schipper

University of California, Davis - Department of Economics

Date Written: February 6, 2017

Abstract

One fundamental assumption often made in the literature on unawareness is that risk preferences are invariant to changes of awareness. We study how exposure to unawareness affects choices under risk. Participants in our experiment choose repeatedly between varying sure outcomes and a lottery in 3 phases. All treatments are exactly identical in phase 1 and phase 3, but differ in phase 2. There are five different treatments pertaining to the lottery faced in phase 2: The control treatment (i.e., a standard lottery), the treatment with awareness of unawareness of lottery outcomes but known number of outcomes, the treatment with awareness of unawareness of outcomes but with unknown number of outcomes, the treatment with unawareness of unawareness of some outcomes, and the treatment with an ambiguous lottery. We study both whether behavior differs in phase 3 across treatments (between subjects effect) and whether differences of subjects' behavior between phases 1 and phase 3 differs across treatments (within subject effects). We observe no significant treatment effects.

Keywords: Unawareness, Awareness of unawareness, Risk aversion, Experiments

JEL Classification: C91, C92, D81, D87

Suggested Citation

Ma, Wenjun and Schipper, Burkhard C., Does Exposure to Unawareness Affect Risk Preferences? A Preliminary Result (February 6, 2017). Available at SSRN: https://ssrn.com/abstract=2961690 or http://dx.doi.org/10.2139/ssrn.2961690

Wenjun Ma

Shenzhen University ( email )

3688 Nanhai Road, Nanshan District
Shenzhen, Guangdong 518060
China

Burkhard C. Schipper (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-6142 (Phone)
530-752-9382 (Fax)

HOME PAGE: http://www.econ.ucdavis.edu/faculty/schipper/

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