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Shunning uncertainty: The neglect of learning opportunities

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  • Trautmann, Stefan T.
  • Zeckhauser, Richard J.

Abstract

Financial, managerial, and medical decisions often involve alternatives whose possible outcomes have uncertain probabilities. In contrast to alternatives whose probabilities are known, these uncertain alternatives offer the benefits of learning. In repeat-choice situations, such learning brings value. If probabilities appear favorable (unfavorable), a choice can be repeated (avoided). In a series of experiments involving bets on the colors of poker chips drawn from bags, decision makers often prove to be blind to the learning opportunities offered by uncertain probabilities. They forgo significant expected payoffs when they shun uncertain alternatives in favor of known ones. Worse, when information is revealed, many make choices contrary to learning. Priming with optimal strategies offers little improvement. Such decision makers violate identified requirements for making rational decisions.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 79 (2013)
Issue (Month): C ()
Pages: 44-55

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Handle: RePEc:eee:gamebe:v:79:y:2013:i:c:p:44-55

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Web page: http://www.elsevier.com/locate/inca/622836

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Keywords: Risk; Uncertainty; Learning; Information; Gamblerʼs fallacy;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. On uncertainty
    by chris dillow in Stumbling and Mumbling on 2011-12-06 15:59:55
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Cited by:
  1. Vieider, Ferdinand M. & Lefebvre, Mathieu & Bouchouicha, Ranoua & Chmura, Thorsten & Hakimov, Rustamdjan & Krawczyk, Michal & Martinsson, Peter, 2013. "Common components of risk and uncertainty attitudes across contexts and domains: Evidence from 30 countries," Discussion Papers, WZB Junior Research Group Risk and Development SP II 2013-402, Social Science Research Center Berlin (WZB).
  2. Roy, Devjani & Zeckhauser, Richard, 2013. "Ignorance: Lessons from the Laboratory of Literature," Working Paper Series rwp13-039, Harvard University, John F. Kennedy School of Government.
  3. Oechssler, Jörg & Roomets, Alex, 2014. "A Test of Mechanical Ambiguity," Working Papers 0555, University of Heidelberg, Department of Economics.

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