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Preference Reversals for Ambiguity Aversion

  • Stefan T. Trautmann


    (Tiber, CentER for Economic Research, and Department of Economics, Tilburg University, 5000 LE Tilburg, The Netherlands)

  • Ferdinand M. Vieider


    (Ludwig-Maximilians University Munich, 80802 Munich, Germany)

  • Peter P. Wakker


    (Econometric Institute, Erasmus University Rotterdam, 3000 DR Rotterdam, The Netherlands)

This paper finds preference reversals in measurements of ambiguity aversion, even if psychological and informational circumstances are kept constant. The reversals are of a fundamentally different nature than the reversals found before because they cannot be explained by context-dependent weightings of attributes. We offer an explanation based on Sugden's random-reference theory, with different elicitation methods generating different random reference points. Then measurements of ambiguity aversion that use willingness to pay are confounded by loss aversion and hence overestimate ambiguity aversion. This paper was accepted by Teck Ho, decision analysis.

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Article provided by INFORMS in its journal Management Science.

Volume (Year): 57 (2011)
Issue (Month): 7 (July)
Pages: 1320-1333

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Handle: RePEc:inm:ormnsc:v:57:y:2011:i:7:p:1320-1333
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