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The effects of endowment on the demand for probabilistic information

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  • Roca, Mercè
  • Maule, A. John
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    Abstract

    Research shows that individuals are ambiguity averse: they choose unambiguous over equivalent ambiguous prospects and price them higher (either as buyers or sellers). Moreover, it is often assumed that ambiguity averse individuals are willing to pay an ambiguity premium for information that reduces ambiguity [Camerer, C. F., & Weber, M. (1992). Recent developments in modeling preferences: Uncertainty and ambiguity. Journal of Risk and Uncertainty, 5(4), 325-370]. However, when people are asked to exchange an ambiguous alternative in their possession for an equivalent unambiguous one, they prefer to retain the former [Roca, M., Hogarth, R. M., & Maule, A. J. (2006). Ambiguity seeking as a result of the status quo bias. Journal of Risk and Uncertainty, 32(3), 175-194]. We present three experiments investigating the economic effects of endowment on attitudes towards ambiguity and the ambiguity premium. The experiments, based on a [Becker, G., DeGroot, M., & Marschak, J. (1964). Measuring utility by a single-response sequential method. Science, 9, 3] procedure, show that the value attributed to ambiguity reducing information is substantially affected by the status quo of the individual.

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    Bibliographic Info

    Article provided by Elsevier in its journal Organizational Behavior and Human Decision Processes.

    Volume (Year): 109 (2009)
    Issue (Month): 1 (May)
    Pages: 56-66

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    Handle: RePEc:eee:jobhdp:v:109:y:2009:i:1:p:56-66

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    Web page: http://www.elsevier.com/locate/obhdp

    Related research

    Keywords: Ambiguity Risk Endowment effect Decision making Uncertainty;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Mercè Roca & Robin Hogarth & A. Maule, 2006. "Ambiguity seeking as a result of the status quo bias," Journal of Risk and Uncertainty, Springer, vol. 32(3), pages 175-194, May.
    2. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
    3. W. Kip Viscusi & Wesley A. Magat & Joel Huber, 1987. "An Investigation of the Rationality of Consumer Valuations of Multiple Health Risks," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 465-479, Winter.
    4. Robin M. Hogarth & Hillel J. Einhorn, 1990. "Venture Theory: A Model of Decision Weights," Management Science, INFORMS, vol. 36(7), pages 780-803, July.
    5. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
    6. Einhorn, Hillel J & Hogarth, Robin M, 1986. "Decision Making under Ambiguity," The Journal of Business, University of Chicago Press, vol. 59(4), pages S225-50, October.
    7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
    8. Wilcox, Nathaniel T, 1993. "Lottery Choice: Incentives, Complexity and Decision Time," Economic Journal, Royal Economic Society, vol. 103(421), pages 1397-1417, November.
    9. Camerer, Colin & Weber, Martin, 1992. " Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-70, October.
    10. Eisenberger, Roselies & Weber, Martin, 1995. "Willingness-to-Pay and Willingness-to-Accept for Risky and Ambiguous Lotteries," Journal of Risk and Uncertainty, Springer, vol. 10(3), pages 223-33, May.
    11. Fox, Craig R. & Weber, Martin, 2002. "Ambiguity Aversion, Comparative Ignorance, and Decision Context," Organizational Behavior and Human Decision Processes, Elsevier, vol. 88(1), pages 476-498, May.
    12. Heath, Chip & Tversky, Amos, 1991. " Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 5-28, January.
    13. Fox, Craig R & Tversky, Amos, 1995. "Ambiguity Aversion and Comparative Ignorance," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 585-603, August.
    14. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-84, December.
    15. Kahn, Barbara E & Sarin, Rakesh K, 1988. " Modeling Ambiguity in Decisions under Uncertainty," Journal of Consumer Research, University of Chicago Press, vol. 15(2), pages 265-72, September.
    16. Holt, Charles A, 1986. "Preference Reversals and the Independence Axiom," American Economic Review, American Economic Association, vol. 76(3), pages 508-15, June.
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