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Manipulating reliance on intuition reduces risk and ambiguity aversion

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  • Butler, Jeffrey V.
  • 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 Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2013/13.

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Date of creation: 2013
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Handle: RePEc:zbw:cfswop:201313

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Keywords: Risk Aversion; Ambiguity Aversion; Decision Theory; Dual Systems; Intuitive Thinking;

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  1. Jeffrey V. Butler & Luigi Guiso & Tullio Jappelli, 2011. "The Role of Intuition and Reasoning in Driving Aversion to Risk and Ambiguity," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 282, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 15 Jan 2013.
  2. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, American Economic Association, vol. 93(5), pages 1449-1475, December.
  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, 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, 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, University of Chicago Press, vol. 36(2), pages 173 - 187.
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Cited by:
  1. Ralf Bergheim & Michael W.M. Roos, 2013. "Intuition and Reasoning in Choosing Ambiguous and Risky Lotteries," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0440, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Ennio Bilancini & Leonardo Boncinelli, 2014. "Persuasion with Reference Cues and Elaboration Costs," Center for Economic Research (RECent), University of Modena and Reggio E., Dept. of Economics 102, University of Modena and Reggio E., Dept. of Economics.
  3. Oechssler, Jörg & Roomets, Alex, 2014. "A Test of Mechanical Ambiguity," Working Papers, University of Heidelberg, Department of Economics 0555, University of Heidelberg, Department of Economics.

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