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Manipulating Reliance on Intuition Reduces Risk and Ambiguity Aversion

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  • Butler, Jeff
  • Guiso, Luigi
  • Jappelli, Tullio

Abstract

Prior research suggests that those who rely on intuition rather than effortful reasoning when making decisions are less averse to risk and ambiguity. The evidence is largely correlational, however, leaving open the question of the direction of causality. In this paper, we present experimental evidence of causation running from reliance on intuition to risk and ambiguity preferences. We directly manipulate participants’ predilection to rely on intuition and find that enhancing reliance on intuition lowers the probability of being ambiguity averse by 30 percentage points and increases risk tolerance by about 30 percent in the experimental sub‐ population where we would a priori expect the manipulation to be successful (males).

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9461.

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Date of creation: May 2013
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Handle: RePEc:cpr:ceprdp:9461

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Related research

Keywords: ambiguity aversion; decision theory; dual systems; intuitive thinking; risk aversion;

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References

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  1. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
  2. Jeffrey V. Butler & Luigi Guiso & Tullio Jappelli, 2011. "The role of intuition and reasoning in driving aversion to risk and ambiguity," EIEF Working Papers Series 1107, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2011.
  3. Charles R. Plott & Kathryn Zeiler, 2005. "The Willingness to Pay–Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations," American Economic Review, American Economic Association, vol. 95(3), pages 530-545, June.
  4. Michel Tuan Pham & Leonard Lee & Andrew T. Stephen, 2012. "Feeling the Future: The Emotional Oracle Effect," Journal of Consumer Research, University of Chicago Press, vol. 39(3), pages 461 - 477.
  5. Leonard Lee & On Amir & Dan Ariely, 2009. "In Search of Homo Economicus: Cognitive Noise and the Role of Emotion in Preference Consistency," Journal of Consumer Research, University of Chicago Press, vol. 36(2), pages 173 - 187.
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Cited by:
  1. Oechssler, Jörg & Roomets, Alex, 2014. "A Test of Mechanical Ambiguity," Working Papers 0555, University of Heidelberg, Department of Economics.
  2. Ralf Bergheim & Michael W.M. Roos, 2013. "Intuition and Reasoning in Choosing Ambiguous and Risky Lotteries," Ruhr Economic Papers 0440, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  3. Ennio Bilancini & Leonardo Boncinelli, 2014. "Persuasion with Reference Cues and Elaboration Costs," Working Papers - Economics wp2014_04.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

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