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Attitudes to risk and attitudes to uncertainty: experimental evidence

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Author Info
Carmela Di Mauro
Anna Maffioletti

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Abstract

In a series of experiments the interactions among individual attitudes towards risk and uncertainty, the sign of the outcome domain, and the way uncertainty is represented are tested. This is done in a unified framework, eliciting individual values by means of a second price auction. Results confirm the presence of the well-known fourfold pattern of risk attitude (risk aversion for gains and risk seeking for losses at high probability, and risk seeking for gains and risk aversion for losses at low probability) and show that this pattern can also be extended to uncertainty. In the valuation of losses the modal pattern is decreasing risk and uncertainty aversion as the probability of loss increases, while increasing risk and uncertainty aversion is observed for gains. Moreover, it is found that the size of reaction to uncertainty does not depend on the outcome domain, and that it persists in the face of an incentive-compatible mechanism to elicit preferences.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 4 (March)
Pages: 357-372
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Handle: RePEc:taf:applec:v:36:y:2004:i:4:p:357-372

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References listed on IDEAS
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.:

  1. Shogren, Jason F. & Seung Y. Shin & Dermot J. Hayes & James B. Kliebenstein, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," American Economic Review, American Economic Association, vol. 84(1), pages 255-70, March.
  2. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  3. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, vol. 63(6), pages 1255-80, November. [Downloadable!] (restricted)
  4. Einhorn, Hillel J & Hogarth, Robin M, 1986. "Decision Making under Ambiguity," Journal of Business, University of Chicago Press, vol. 59(4), pages S225-50, October. [Downloadable!] (restricted)
  5. Maffioletti, Anna & Santoni, Michele, 2001. "Do Trade Union Leaders Violate Subjective Expected Utility?Some Insights from Experimental Data," Sonderforschungsbereich 504 Publications 01-43, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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  6. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  7. Camerer, Colin & Kunreuther, Howard, 1989. " Experimental Markets for Insurance," Journal of Risk and Uncertainty, Springer, vol. 2(3), pages 265-99, September.
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Cited by:
(explanations, 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.)

  1. Alexander Harin, 2005. "Gains and losses. The same or different choices?," International Finance 0508004, EconWPA. [Downloadable!]
  2. Ozlem Ozdemir, 2007. "Valuation of Self-Insurance and Self-Protection under Ambiguity: Experimental Evidence," Jena Economic Research Papers in Economics 2007-034, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek. [Downloadable!]
  3. Alexander Harin, 2005. "Gains and losses: the same or different choices? A “non-ideal” economics approach," International Finance 0509002, EconWPA. [Downloadable!]
  4. Andrea Morone & Ozlem Ozdemir, 2006. "Valuing Protection against Low Probability, High Loss Risks: Experimental Evidence," Discussion Papers on Strategic Interaction 2006-34, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  5. Jeff Richardson & John McKie, 2005. "Reassurance, regret and uncertainty: testing ex ante sources of (dis)utility and the welfarist account of social welfare," Centre for Health Economics Working Papers 153/05, Monash University, Centre for Health Economics. [Downloadable!]
  6. Andrea Morone & Ozlem Ozdemir, 2005. "Measuring the Degree of Ambiguity about Probability: Experimental Evidence," Discussion Papers on Strategic Interaction 2005-40, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  7. Annamaria Fiore & M. Vittoria Levati & Andrea Morone, 2006. "Voluntary contributions with imperfect information: An experimental study," Discussion Papers on Strategic Interaction 2006-30, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  8. Harin, Alexander, 2007. "Principle of uncertain future and utility," MPRA Paper 1959, University Library of Munich, Germany. [Downloadable!]
  9. Alexander Harin, 2005. "A Rational Irrational Man," Public Economics 0511005, EconWPA. [Downloadable!]
  10. John McKie & Jeff Richardson, 2005. "Neglected equity issues in cost effectiveness analysis - part 2: direct and indirect costs, the preservation of hope, the rule of rescue, patient adaptation, and the Ex Ante/Ex Post distinction," Centre for Health Economics Research Papers 8/05, Monash University, Centre for Health Economics. [Downloadable!]
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