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

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