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Sampling experience reverses preferences for ambiguity

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  • Eyal Ert
  • Stefan Trautmann

Abstract

People often need to choose between alternatives with known probabilities (risk) and alternatives with unknown probabilities (ambiguity). Such decisions are characterized by attitudes towards ambiguity, which are distinct from risk attitudes. Most studies of ambiguity attitudes have focused on the static case of single choice, where decision makers typically prefer risky over ambiguous prospects. However, in many situations, decision makers may be able to sample outcomes of an ambiguous alternative, allowing for inferences about its probabilities. The current paper finds that such sampling experience reverses the pattern of ambiguity attitude observed in the static case. This effect can only partly be explained by the updating of probabilistic beliefs, suggesting a direct effect of sampling on attitudes toward ambiguity. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Eyal Ert & Stefan Trautmann, 2014. "Sampling experience reverses preferences for ambiguity," Journal of Risk and Uncertainty, Springer, vol. 49(1), pages 31-42, August.
    • Handle: RePEc:kap:jrisku:v:49:y:2014:i:1:p:31-42
    DOI: 10.1007/s11166-014-9197-9
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    Cited by:

    1. Konstantinos Georgalos, 2016. "Dynamic decision making under ambiguity," Working Papers 112111041, Lancaster University Management School, Economics Department.
    2. Denis Shishkin & Pietro Ortoleva, 2021. "Ambiguous Information and Dilation: An Experiment," Working Papers 2020-53, Princeton University. Economics Department..
    3. Michal W. Krawczyk & Stefan T. Trautmann & Gijs Kuilen, 2017. "Catastrophic risk: social influences on insurance decisions," Theory and Decision, Springer, vol. 82(3), pages 309-326, March.
    4. Ronald Klingebiel & Feibai Zhu, 2023. "Ambiguity aversion and the degree of ambiguity," Journal of Risk and Uncertainty, Springer, vol. 67(3), pages 299-324, December.
    5. Othon M. Moreno & Yaroslav Rosokha, 2016. "Learning under compound risk vs. learning under ambiguity – an experiment," Journal of Risk and Uncertainty, Springer, vol. 53(2), pages 137-162, December.
    6. Massimiliano Amarante & Mario Ghossoub, 2016. "Optimal Insurance for a Minimal Expected Retention: The Case of an Ambiguity-Seeking Insurer," Risks, MDPI, vol. 4(1), pages 1-27, March.
    7. Roxane Bricet, 2018. "The price for instrumentally valuable information," THEMA Working Papers 2018-10, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    8. Robin Cubitt & Orestis Kopsacheilis & Chris Starmer, 2022. "An inquiry into the nature and causes of the Description - Experience gap," Journal of Risk and Uncertainty, Springer, vol. 65(2), pages 105-137, October.
    9. repec:cup:judgdm:v:17:y:2022:i:5:p:1146-1175 is not listed on IDEAS
    10. repec:jdm:journl:v:17:y:2022:i:5:p:1146-1175 is not listed on IDEAS
    11. Inkyung Park & Paul D Windschitl & Andrew R Smith & Shanon Rule & Aaron M Scherer & Jillian O Stuart, 2021. "Context dependency in risky decision making: Is there a description-experience gap?," PLOS ONE, Public Library of Science, vol. 16(2), pages 1-25, February.
    12. Roxane Bricet, 2018. "Precise versus imprecise datasets: revisiting ambiguity attitudes in the Ellsberg paradox," THEMA Working Papers 2018-08, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    13. Ilke Aydogan & Yu Gao, 2020. "Experience and rationality under risk: re-examining the impact of sampling experience," Experimental Economics, Springer;Economic Science Association, vol. 23(4), pages 1100-1128, December.
    14. Georgalos, Konstantinos, 2021. "Dynamic decision making under ambiguity: An experimental investigation," Games and Economic Behavior, Elsevier, vol. 127(C), pages 28-46.
    15. Aurélien Baillon & Han Bleichrodt & Umut Keskin & Olivier l’Haridon & Chen Li, 2018. "The Effect of Learning on Ambiguity Attitudes," Management Science, INFORMS, vol. 64(5), pages 2181-2198, May.
    16. Ilke Aydogan, 2021. "Prior Beliefs and Ambiguity Attitudes in Decision from Experience," Management Science, INFORMS, vol. 67(11), pages 6934-6945, November.
    17. Shishkin, Denis & Ortoleva, Pietro, 2023. "Ambiguous information and dilation: An experiment," Journal of Economic Theory, Elsevier, vol. 208(C).
    18. James R. Bland & Yaroslav Rosokha, 2021. "Learning under uncertainty with multiple priors: experimental investigation," Journal of Risk and Uncertainty, Springer, vol. 62(2), pages 157-176, April.

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    More about this item

    Keywords

    C91; D81; Ambiguity aversion; Decisions from experience; Sampling; Probability estimates;
    All these keywords.

    JEL classification:

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

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