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Effects of Outcome and Probabilistic Ambiguity on Managerial Choices

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  • Ho, Joanna L Y
  • Keller, L Robin
  • Keltyka, Pamela
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    Abstract

    Information ambiguity is prevalent in organizations and likely influences management decisions. This study examines, given imprecise probabilities and outcomes, how managers make choices when they are provided with single-figure benchmarks. Seventy-nine MBA students completed two experiments. We found that, in a decision framed as a decision under certainty involving an ambiguous outcome, the majority of the subjects were ambiguity prone in the loss condition and switched to ambiguity aversion in the gain condition. However, in the presence of probabilistic ambiguity in a decision under risk, this expected switching pattern was shown only when the difference in riskiness between the two choice options (in the loss condition) was perceived to be relatively small. In a companion study, we used a written protocol approach to identify factors that affect decision makers' investment choices when faced with ambiguous outcomes. Protocols frequently mentioned that the ambiguous outcome option was risky, even in the case which was framed as a decision under certainty in the problem statement. In a decision under risk with ambiguous outcomes, the combination of probabilistic risk and outcome ambiguity was seen as even more risky. Copyright 2002 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 24 (2002)
    Issue (Month): 1 (January)
    Pages: 47-74

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    Handle: RePEc:kap:jrisku:v:24:y:2002:i:1:p:47-74

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    Cited by:
    1. Laure Cabantous, 2007. "Ambiguity Aversion in the Field of Insurance: Insurers’ Attitude to Imprecise and Conflicting Probability Estimates," Theory and Decision, Springer, vol. 62(3), pages 219-240, May.
    2. Ozlem Ozdemir, 2007. "Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence," Jena Economic Research Papers 2007-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
    3. Bethany J. Weber & Wah Pheow Tan, 2012. "Ambiguity aversion in a delay analogue of the Ellsberg Paradox," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(4), pages 383-389, July.
    4. Aurélien Baillon & Laure Cabantous & Peter Wakker, 2012. "Aggregating imprecise or conflicting beliefs: An experimental investigation using modern ambiguity theories," Journal of Risk and Uncertainty, Springer, vol. 44(2), pages 115-147, April.
    5. Menachem Brenner & Yehuda Izhakian & Orly Sade, 2011. "Ambiguity and Overconfidence," Working Papers 11-06, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Haisley, Emily C. & Weber, Roberto A., 2010. "Self-serving interpretations of ambiguity in other-regarding behavior," Games and Economic Behavior, Elsevier, vol. 68(2), pages 614-625, March.
    7. Marcus Berliant & Hideo Konishi, 2004. "Salience: Agenda Choices by Competing Candidates," Boston College Working Papers in Economics 603, Boston College Department of Economics.
    8. Lahno, Amrei M., 2014. "Social anchor effects in decision-making under ambiguity," Discussion Papers in Economics 20960, University of Munich, Department of Economics.
    9. DeKay, Michael L. & Patiño-Echeverri, Dalia & Fischbeck, Paul S., 2009. "Distortion of probability and outcome information in risky decisions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 109(1), pages 79-92, May.
    10. Laure Cabantous & Denis Hilton & Howard Kunreuther & Erwann Michel-Kerjan, 2011. "Is imprecise knowledge better than conflicting expertise? Evidence from insurers’ decisions in the United States," Journal of Risk and Uncertainty, Springer, vol. 42(3), pages 211-232, June.
    11. Yitong Wang & Tianjun Feng & L. Keller, 2013. "A further exploration of the uncertainty effect," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 291-310, December.
    12. Laure Cabantous & Denis Hilton, 2006. "De l'aversion à l'ambiguïté aux attitudes face à l'ambiguïté. Les apports d'une perspective psychologique en économie," Revue économique, Presses de Sciences-Po, vol. 57(2), pages 259-280.
    13. Mary Riddel & W. Shaw, 2006. "A theoretically-consistent empirical model of non-expected utility: An application to nuclear-waste transport," Journal of Risk and Uncertainty, Springer, vol. 32(2), pages 131-150, March.
    14. Joanna Ho & L. Keller & Pamela Keltyka, 2005. "How Do Information Ambiguity and Timing of Contextual Information Affect Managers’ Goal Congruence in Making Investment Decisions in Good Times vs. Bad Times?," Journal of Risk and Uncertainty, Springer, vol. 31(2), pages 163-186, September.
    15. Akay, Alpaslan & Martinsson, Peter & Medhin, Haileselassie & Trautmann, Stefan T., 2009. "Attitudes toward Uncertainty among the Poor: Evidence from Rural Ethiopia," IZA Discussion Papers 4225, Institute for the Study of Labor (IZA).
    16. Peter Wakker & Danielle Timmermans & Irma Machielse, 2007. "The effects of statistical information on risk ambiguity attitudes, and on rational insurance decisions," Natural Field Experiments 00338, The Field Experiments Website.

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