Sampling Experience Reverses Preferences for Ambiguity
Posted: 9 Dec 2014
Date Written: December 9, 2014
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.
Keywords: Ambiguity aversion, Decisions from experience, Sampling, Probability estimates
JEL Classification: C91, D81
Suggested Citation: Suggested Citation