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The Role of Intuition and Reasoning in Driving Aversion to Risk and Ambiguity

Using a large sample of retail investors as well as experimental data we find that risk and ambiguity aversion are positively correlated. We provide evidence that a common link is decision mode: intuitive thinkers tolerate more risk and ambiguity than effortful reasoners. One interpretation is that intuitive thinking confers an advantage in risky or ambiguous situations. We present supporting lab and field evidence that intuitive thinkers outperform others in uncertain environments. Finally, we find that risk and ambiguity aversion vary with individual characteristics and wealth. The wealthy are less risk averse but more ambiguity averse, which has implications for financial puzzles.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 282.

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Date of creation: 05 Apr 2011
Date of revision: 15 Jan 2013
Publication status: Published in Theory and Decision, 2014, 77(4), 455-484
Handle: RePEc:sef:csefwp:282
Contact details of provider: Postal: I-80126 Napoli
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