What Do We Think We Know When We Don't Know Much?

9 Pages Posted: 24 Aug 2006

See all articles by Helen N. Pushkarskaya

Helen N. Pushkarskaya

University of Kentucky - Department of Agricultural Economics

Sharon Alvarez

University of Pittsburgh - Katz Graduate School of Business

Date Written: August 2006

Abstract

There are three kinds of decision making environments with less than perfect information about the outcome of a decision that vary in the extent to which the information available to decision makers is imperfect. A decision making setting is defined as risky when both the possible outcomes, and the probability of those outcomes, are known before a decision is made. A decision making setting is defined as ambiguous when the possible outcomes of a decision are known before the decision is made, but the probabilities of those different outcomes occurring are not known, when a decision is being made (for survey see Camerer & Weber, 1992). Finally, a decision making setting is defined as uncertain (or sample space ignorance, i.e. Michael Smithson et al, 1999) when neither the possible outcomes, nor the probabilities of those outcomes, are known when a decision is being made.

Results of Fox and Tversky (1995) suggest that expert bias can influence individual perception of ambiguous environments. If people feel that they have more expertise about the environment they are more confident about their estimate of the probabilities. One possible implication of this finding is that experts might perceive ambiguous environments as risky more often.

This study demonstrates that expert bias influences individuals' perception under sample space ignorance as well, but not the same way as in ambiguous environments, i.e. in such environments experts are less confident then non experts in their estimates of possible outcomes, and experts are more likely then non experts to expect that something completely unexpected might happen.

Keywords: Sample space ignorance, ambiguity, perception, expert bias

JEL Classification: D80, C91

Suggested Citation

Pushkarskaya, Helen N. and Alvarez, Sharon, What Do We Think We Know When We Don't Know Much? (August 2006). Fisher College of Business Working Paper No. 2006-01-001, Available at SSRN: https://ssrn.com/abstract=922722 or http://dx.doi.org/10.2139/ssrn.922722

Helen N. Pushkarskaya (Contact Author)

University of Kentucky - Department of Agricultural Economics ( email )

Lexington, KY 40546
United States

Sharon Alvarez

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
228
Abstract Views
1,492
Rank
242,153
PlumX Metrics