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Does Exposure to Unawareness Affect Risk Preferences? A Preliminary Result

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Listed:
  • Burkhard Schipper
  • Wenjun Ma

    (Department of Economics, University of California Davis)

Abstract

One fundamental assumption often made in the literature on unawareness is that risk preferences are invariant to changes of awareness. We study how exposure to unawareness affects choices under risk. Participants in our experiment choose repeatedly between varying sure outcomes and a lottery in 3 phases. All treatments are exactly identical in phase 1 and phase 3, but differ in phase 2. There are five different treatments pertaining to the lottery faced in phase 2: The control treatment (i.e., a standard lottery), the treatment with awareness of unawareness of lottery outcomes but known number of outcomes, the treatment with awareness of unawareness of outcomes but with unknown number of outcomes, the treatment with unawareness of unawareness of some outcomes, and the treatment with an ambiguous lottery. We study both whether behavior differs in phase 3 across treatments (between subjects effect) and whether differences of subjects' behavior between phases 1 and phase 3 differs across treatments (within subject effects). We observe no significant treatment effects.

Suggested Citation

  • Burkhard Schipper & Wenjun Ma, 2017. "Does Exposure to Unawareness Affect Risk Preferences? A Preliminary Result," Working Papers 255, University of California, Davis, Department of Economics.
    • Handle: RePEc:cda:wpaper:255
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    References listed on IDEAS

    as
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    Cited by:

    1. Antonio Díaz & Carlos Esparcia, 2021. "Dynamic optimal portfolio choice under time-varying risk aversion," International Economics, CEPII research center, issue 166, pages 1-22.
    2. Dominiak, Adam & Tserenjigmid, Gerelt, 2018. "Belief consistency and invariant risk preferences," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 157-162.
    3. Karni, Edi & Vierø, Marie-Louise, 2017. "Awareness of unawareness: A theory of decision making in the face of ignorance," Journal of Economic Theory, Elsevier, vol. 168(C), pages 301-328.
    4. Guo, Julie & Tymula, Agnieszka, 2021. "Waterfall illusion in risky choice – exposure to outcome-irrelevant gambles affects subsequent valuation of risky gambles," European Economic Review, Elsevier, vol. 139(C).
    5. Adam Dominiak & Ani Guerdjikova, 2021. "Pessimism and optimism towards new discoveries," Theory and Decision, Springer, vol. 90(3), pages 321-370, May.
    6. Araujo, Felipe A. & Piermont, Evan, 2023. "Unawareness and risk taking: The role of context," Journal of Economic Behavior & Organization, Elsevier, vol. 208(C), pages 61-79.

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    More about this item

    Keywords

    Unawareness; Awareness of unawareness; Risk aversion; Experiments;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics

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