Preference for Ambiguity and Difficult Choices

12 Pages Posted: 23 Oct 2019 Last revised: 29 Oct 2019

See all articles by Pedram Heydari

Pedram Heydari

Northeastern University - Department of Economics

Christopher Chabris

Geisinger Health System

Date Written: October 21, 2019

Abstract

A well-known finding in behavioral economics is that people often avoid ambiguous gambles whose outcome probabilities are unknown in favor of risky gambles whose outcome probabilities are known, a phenomenon that is called ambiguity aversion. In a novel preregistered online experiment with 1195 participants, we test the hypothesis that people show a higher preference for ambiguous gambles when they find it hard to rank its outcomes, where the outcomes themselves are simple monetary lotteries. The experiment results confirm our hypothesis. These results imply that theoretical models of choice under uncertainty should be modified in a way that allows them to assign different degrees of ambiguity aversion or seeking based on the difficultly of comparing the outcomes of uncertainty.

Keywords: Ambiguity, Risk, Uncertainty, Ambiguity Aversion, Ambiguity Seeking, Ellsberg Paradox, Difficult Choices

JEL Classification: D0, D81

Suggested Citation

Heydari, Pedram and Chabris, Christopher, Preference for Ambiguity and Difficult Choices (October 21, 2019). Available at SSRN: https://ssrn.com/abstract=3469915 or http://dx.doi.org/10.2139/ssrn.3469915

Pedram Heydari (Contact Author)

Northeastern University - Department of Economics ( email )

301 Lake Hall
360 Huntington Avenue
Boston, MA 02115
United States

Christopher Chabris

Geisinger Health System ( email )

120 Hamm Drive, Suite 2A, MC 60-36
Lewisburg, PA 17837
United States

HOME PAGE: http://www.chabris.com

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