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An examination of ambiguity aversion: Are two heads better than one?

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  • L. Robin Keller
  • Rakesh K. Sarin
  • Jayavel Sounderpandian
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    Abstract

    Ambiguity aversion has been widely observed in individuals' judgments. Using scenarios that are typical in decision analysis, we investigate ambiguity aversion for pairs of individuals. We examine risky and cautious shifts from individuals' original judgments to their judgments when they are paired up in dyads. In our experiment the participants were first asked to specify individually their willingness-to-pay for six monetary gambles. They were then paired at random into dyads, and were asked to specify their willingness-to-pay amount for the same gambles. The dyad's willingness-to-pay amount was to be shared equally by the two individuals. Of the six gambles in our experiment, one involved no ambiguity and the remaining five involved different degrees of ambiguity. We found that dyads exhibited risk aversion as well as ambiguity aversion. The majority of the dyads exhibited a cautious shift in the face of ambiguity, stating a smaller willingness-to-pay than the two individuals' average. Our study thus confirms the persistence of ambiguity aversion in a group setting and demonstrates the predominance of cautious shifts for dyads.

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    Bibliographic Info

    Article provided by Society for Judgment and Decision Making in its journal Judgment and Decision Making.

    Volume (Year): 2 (2007)
    Issue (Month): (December)
    Pages: 390-397

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    Handle: RePEc:jdm:journl:v:2:y:2007:i::p:390-397

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    Related research

    Keywords: ambiguity of probabilities; ambiguity aversion; risk aversion; group decision; dyads.;

    References

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    1. 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.
    2. Chow, Clare Chua & Sarin, Rakesh K, 2001. " Comparative Ignorance and the Ellsberg Paradox," Journal of Risk and Uncertainty, Springer, vol. 22(2), pages 129-39, March.
    3. Hoch, Stephen J & Ha, Young-Won, 1986. " Consumer Learning: Advertising and the Ambiguity of Product Experience," Journal of Consumer Research, University of Chicago Press, vol. 13(2), pages 221-33, September.
    4. 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.
    5. Kunreuther, Howard & Meszaros, Jacqueline & Hogarth, Robin M. & Spranca, Mark, 1995. "Ambiguity and underwriter decision processes," Journal of Economic Behavior & Organization, Elsevier, vol. 26(3), pages 337-352, May.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. Shapira, Zur, 1993. " Ambiguity and Risk Taking in Organizations," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 89-94, August.
    11. Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
    12. Hogarth, Robin M & Kunreuther, Howard, 1989. " Risk, Ambiguity, and Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(1), pages 5-35, April.
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    Cited by:
    1. Daniela Di Cagno & Emanuela Sciubba & Marco Spallone, 2012. "Choosing a gambling partner: testing a model of mutual insurance in the lab," Theory and Decision, Springer, vol. 72(4), pages 537-571, April.

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