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The Future Ambiguity Effect: How Narrow Payoff Ranges Increase Future Payoff Appeal

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  • Yuanyuan Liu

    (School of Management, State Key Laboratory for Manufacturing Systems Engineering, Xi’an Jiaotong University, 710049 Xi'an, Shaanxi, People’s Republic of China)

  • Timothy B. Heath

    (Muma College of Business, University of South Florida, Tampa, Florida 33620)

  • Ayse Onculer

    (ESSEC Business School, 95021 Cergy, France)

Abstract

Increasing a current payoff’s ambiguity from a precise value (e.g., $150) to a range (e.g., $140–$160) generally reduces the payoff’s appeal, as does delaying the payoff from, for example, now to one year from now. However, we report five studies in which adding small ranges to future payoffs increases future payoff appeal, an emergent property designated the future ambiguity effect . This effect generalizes across various choice sets, payoff levels, and delays, and it prevails even when a future smaller ambiguous payoff is preferred more than a future larger precise payoff. Two underlying processes are proposed and supported: (1) the payoff ambiguity’s explicit risk of receiving a smaller payoff distracts people from the future’s larger implicit risk of receiving nothing, and (2) payoff ambiguity restores some of the excitement lost to the future’s psychological distance. Nonetheless, the future ambiguity effect is not universal, given that larger ranges can reduce and even eliminate it (boundary condition).

Suggested Citation

  • Yuanyuan Liu & Timothy B. Heath & Ayse Onculer, 2020. "The Future Ambiguity Effect: How Narrow Payoff Ranges Increase Future Payoff Appeal," Management Science, INFORMS, vol. 66(8), pages 3754-3770, August.
    • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:8:p:3754-3770
    DOI: 10.1287/mnsc.2019.3375
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