Ambiguity Aversion and Familiarity Bias: Evidence from Behavioral and Gene Association Studies

30 Pages Posted: 22 Dec 2011

See all articles by Soo Hong Chew

Soo Hong Chew

National University of Singapore; National University of Singapore; HKUST

Richard P. Ebstein

Southwestern University of Finance and Economics (SWUFE) - China Center for Behavior Economics and Finance

Songfa Zhong

National University of Singapore (NUS) - Department of Economics

Date Written: July 12, 2011

Abstract

It is increasingly recognized that decision making under uncertainty does not depend only on probabilities, but also on psychological factors. People display ambiguity aversion in preferring to bet on events with known probabilities rather than those for which probabilities are not known. People also tend to bet on uncertainty arising from a familiar source rather than from an unfamiliar source. Using 325 Beijing subjects, we conduct the first neurogenetic study of ambiguity aversion and familiarity bias in an incentivized choice experiment. For ambiguity aversion, 49.4% of the subjects chose to bet on the 50-50 urn despite the unknown urn paying 20% more. For familiarity bias, 39.6% of the subjects chose to bet on whether the temperature on a historic day in Beijing was even or odd rather than choose the corresponding bet with Tokyo temperature for the same day even though the Tokyo bet would pay 20% more. We genotype subjects for anxiety-related candidate genes and find the serotonin transporter polymorphism associated with familiarity bias but not ambiguity aversion while the dopamine D5 receptor gene and estrogen receptor beta gene are associated with ambiguity aversion only among female subjects. Our finding contributes to a deeper understanding of decision making under uncertainty beyond revealed preference.

Keywords: ambiguity aversion, familiarity bias, source dependence, genetics, neuroeconomics

JEL Classification: C91, D14, D81, D87, G11

Suggested Citation

Chew, Soo Hong and Ebstein, Richard P. and Zhong, Songfa, Ambiguity Aversion and Familiarity Bias: Evidence from Behavioral and Gene Association Studies (July 12, 2011). Journal of Risk and Uncertainty, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1883999

Soo Hong Chew

National University of Singapore ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HKUST ( email )

Clear Water Bay
Kowloon, Hong Kong
China

Richard P. Ebstein

Southwestern University of Finance and Economics (SWUFE) - China Center for Behavior Economics and Finance ( email )

Liutai Road 555
Wenjiang
China

Songfa Zhong (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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