Preference for Ambiguity and Difficult Choices
12 Pages Posted: 23 Oct 2019 Last revised: 29 Oct 2019
Date Written: October 21, 2019
A well-known finding in behavioral economics is that people often avoid ambiguous gambles whose outcome probabilities are unknown in favor of risky gambles whose outcome probabilities are known, a phenomenon that is called ambiguity aversion. In a novel preregistered online experiment with 1195 participants, we test the hypothesis that people show a higher preference for ambiguous gambles when they find it hard to rank its outcomes, where the outcomes themselves are simple monetary lotteries. The experiment results confirm our hypothesis. These results imply that theoretical models of choice under uncertainty should be modified in a way that allows them to assign different degrees of ambiguity aversion or seeking based on the difficultly of comparing the outcomes of uncertainty.
Keywords: Ambiguity, Risk, Uncertainty, Ambiguity Aversion, Ambiguity Seeking, Ellsberg Paradox, Difficult Choices
JEL Classification: D0, D81
Suggested Citation: Suggested Citation